Retailers cut forecasts as December discounts hurt profits

Retailers of all stripes -- from home-goods merchant Pier One Imports Inc. to discounter Family Dollar Stores Inc. and luxury lingerie seller L Brands Inc. -- are providing hard evidence that the discount war that marked the holiday season will take a toll on profit.

L Brands, which owns the Victoria’s Secret and Bath & Body Works brands, and Family Dollar today cut profit forecasts after reporting disappointing December sales as promotions that failed to lure shoppers hurt profit margins. Pier One cut its fourth- quarter forecast after December sales trailed its expectations.

The early results are showing that the discounts -- as steep as 75% off at luxury department-store chain Neiman Marcus Group LLC -- didn’t generate sufficient traffic or spur enough purchases of full-priced merchandise to make up for the lost revenue. The reports also pressured retail shares, with the Standard & Poor’s 500 Retailing Index (CME:SPH14) falling 0.7%, compared with a 0.2% drop for the broader S&P 500.

“This was the most promotional holiday season in five years, it’s just not enticing the consumer,” Anna Andreeva, a New York-based analyst at Oppenheimer & Co. Inc., said in a phone interview. “There’s certainly no newness. The consumer’s just postponing purchasing altogether.”

Victoria’s Secret

L Brands said in a statement today that it reduced its forecast because merchandise margins were lower than expected amid promotions. Fourth-quarter profit will be about $1.60 a share, down from a previous forecast of at least $1.67 a share. Analysts projected $1.79, on average. Sales at stores open at least a year at the retailer’s Victoria’s Secret brand rose 3% in December, trailing analysts’ 4.4% average of estimates compiled by Retail Metrics Inc.

Same-store sales at Family Dollar decreased about 3% in December, “driven primarily by a decline in customer transactions,” according to a statement today.

Family Dollar, based in Matthews, North Carolina, said full-year earnings will be as much as $3.55 a share, reduced from a maximum of $4.15. The average of analysts’ estimates was $3.98 a share. Comparable sales in the last quarter fell 2.8%, more than the low single-digit range that it previously expected. Analysts had projected a drop of 1.9%.

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