Despite fears that the stock market crash would send consumer spending into a tailspin, many of the nation's major retailers reported Thursday that they eked out respectable sales gains during the holiday season.
But industry observers cautioned that some chains' profitability suffered from heavy markdowns and that merchants are bracing for another year of modest spending in 1988.
For the five weeks ended Jan. 2, retailers overall recorded sales gains of about 6% over the same period last year, with discount and department stores faring better than most specialty stores.
"Those are gains that really don't spell disaster at all," said Sandra Shaber, an economist with the Futures Group in Washington. It was clear, she added, that "the stock market crash had very little impact."
Even so, with real gains after inflation of only 2% to 3%, the sluggish sales pace made for the "worst Christmas since 1981," when the country was in the middle of a two-year recession, said Carl Steidtmann, vice president and chief economist with Management Horizons in Columbus, Ohio.
And Edward F. Johnson, an analyst with the Johnson Redbook Service in New York, said merchants can expect a tough first half this year as they attempt to unload heavy inventories of women's sportswear, a poor seller during Christmas, 1987.
Johnson added that, even though business gained momentum as the holiday season progressed, his investment firm has lowered earnings estimates for most retailers. When quarterly earnings are reported in February and March, Johnson expects to see gains over the year-earlier period of 7% to 8%, contrasted with the 15% to 16% increases that had been expected.
Among the retailers reporting sales Thursday were Sears, Roebuck & Co., the nation's largest merchant, with a 4.4% increase at stores open at least a year, or "comparable stores." Chairman Michael Bozic made no bones about the tough climate, calling the 1987 holiday period "the most competitive Christmas season in history."
However, Sears spokesman Gordon Jones said that the company "feels pretty good about (Christmas) and that business has picked up since the holiday.
"It has been excellent, even stronger than pre-Christmas," he said. "Considering all the alarm that was expressed about the effects of the stock market, consumers are showing their resilience and taking it in stride."
K mart, the discount chain based in Troy, Mich., was a strong performer, reporting a 5.7% comparable-store gain, with "particular strength" in home electronics, TV sets and women's apparel.
Although J. C. Penney's stores and catalogues managed an 8.4% comparable-store gain, Chairman William R. Howell acknowledged in a statement that the environment became increasingly competitive during the holiday period and that "the quality of our Christmas business was not up to our expectations." Surprised by what they said was a sudden downturn in Penney's mood, analysts rushed to reduce earnings estimates.
"The store managers were over-inventoried," said William N. Smith, an analyst with the Smith Barney, Harris Upham investment firm in New York. He now expects Penney to report annual earnings in the range of $4.50 to $4.55 per share, down from a previous forecast of $4.75.
Penney shares tumbled $3.125 to $43.50 on volume of 2.3 million shares. Penney was not alone in trading profits for volume, however.
"It was obviously a promotional season where most companies, if they made their sales plans, did it by buying sales with promotions," Smith said. "It will not translate as much as hoped into bottom-line growth."
Despite generally heavy sales promotions throughout Southern California, the Broadway department stores in Southern California actually eliminated one major post-Christmas sale day in the period, according to Chairman Philip M. Hawley.
"We felt good enough about the quality of the business that we didn't run it," Hawley said, noting that the move reduced sales volume for the period by less than 1.5%. "It makes for a more profitable month." For its five department store divisions, the company reported comparable-store gains of 3% in December.
Federated Department Stores, the Cincinnati-based parent of Bullock's, Bloomingdale's and I. Magnin, said sales were "considerably stronger" in December than in November, indicating that customers continued their trend toward procrastination of the last few years, according to spokesman Jim Sluzewski. Department store sales rose 5.9% in December, compared to a 1.6% gain in November. Other stores, including specialty stores, rose 15.4% in December, compared to 1% in November.