A number of retailers are reporting quarterly results, and they are expected to confirm a grim outlook for consumer spending this year.

Home Depot, the nation's second-biggest retailer behind Wal-Mart Stores, reported today that fourth-quarter earnings fell 27 percent, as it gave a bleak forecast for the year ahead.

For the year, sales fell 2.1 percent, to $77.3 billion—the first annual sales decline in the company's history.

Home Depot, of course, has been hit especially hard by the slump in housing. But broader retailers, particularly midlevel department stores, are also starting to feel the impact of a general slowdown.

Late Monday, Nordstrom reported fourth-quarter earnings of 92 cents per share, in line with Wall Street estimates.

As Nordstrom disclosed earlier this month, total sales in the quarter ending February 2 fell 4.4 percent, to $2.5 billion, while same-store sales (sales at stores open at least a year) decreased 0.7 percent.

In January, the high-end retailer began to show signs that belt-tightening was moving up the income scale. Same-store sales fell a greater-than-expected 6.6 percent that month and total sales were down 20.3 percent, hurt partially by a shift in the reporting calendar.

According to Nordstrom's forecast, sales will continue to struggle through 2008. Nordstrom expects same-store sales to be flat to 2 percent lower. Earnings are forecast at $2.75 to $2.90, below the average analyst estimate of $3, according to FactSet.

Macy's, which sits above mid-tier stores like Kohl's and J.C. Penney but below high-end ones like Nordstrom and Saks, is also getting stung.

Macy's announced today that same-store sales fell 2 percent in the fourth quarter, with total sales dropping 6.2 percent to $8.6 billion.

Earnings for the quarter were $1.65 per share—when an 18 percent tax benefit is excluded—meeting analyst expectations, but falling short of last year's $1.66 per share in profits.

For the full year 2007, Macy's reported $2.15 in earnings per share, excluding special items, compared with $2.08 per share for the 53 weeks in fiscal 2006.

With the main headline numbers for the quarter having already been disclosed, investors were really looking today for the department store's outlook for 2008.

Macy's reported that it expected same-store sales in fiscal 2008 to range from a decline of 1 percent to a gain of 1.5 percent, with earnings per share of $1.85 to $2.15, excluding onetime costs.

In a move that's likely to displease analysts, Macy's also announced that it would no longer report sales on a monthly basis, adding to the company's earlier decision not to provide quarterly sales or earnings guidance.

Macy's, like so many other retailers, had a punishing January. Same-store sales fell 7.1 percent that month versus an 8.6 percent increase during the same period last year, a bigger drop than analysts—and the retailer itself—were expecting. Same-store sales dropped 7.9 percent in December and rose 13.4 percent in November, helped by a shift in the reporting calendar.

"We are expecting same-store sales at Macy's to remain under pressure over the next few months and modestly recover thereafter," Charles Grom, an analyst with J.P. Morgan, said in a note published on February 7. 



Although it's clear that Macy's faces gathering headwinds, analysts are optimistic about the company's continued integration of May Stores (which it acquired in 2005), and believe that Macy's has the largest opportunity among its peers for cost-cutting in the year ahead.


Citigroup's retail analyst, Deborah Weinswig, says that despite a difficult selling environment, she is confident in the ability of Macy's management to turn around same-store sales and operating margins in the coming year.



Macy's has already begun that task with its recent decision to consolidate three of its seven divisions, bleeding some 2,000 jobs; analysts have largely applauded the decision while simultaneously wondering if more could have been done to lower the bottom line.



"Going forward, we are aggressively pursuing our recently announced market localization initiative to drive future sales and earnings," said Terry J. Lundgren, chairman, president, and C.E.O. of Macy's.

On the other end of the spending spectrum, Target is offering new evidence that discounters are not necessarily immune to economic downturns.

Target reported that profits for the fourth quarter fell to $1.23 per share, from $1.29 per share during the same period last year, but exceeded analyst estimates of $1.22.

Fourth-quarter same-store sales rose 0.2 percent while revenue in the fourth quarter was $19.9 billion, a slight 0.8 percent increase from $19.7 billion in 2006. Shares fell about 4 percent during the quarter.



Same-store sales for the discounter fell 1.1 percent in the January period, after December same-store sales fell 5 percent and rose 10.8 percent in November, short of analyst expectations. 



Traffic, rather than ticket total, is the issue right now for Target. As consumers continue to cut back on discretionary spending, Target lost out on same-store sales growth to Wal-Mart, which posted a 1 percent increase, for the first time in 12 quarters. 


Wal-Mart's focus on groceries and other fundamentals has made it a one-stop shopping destination, an increasingly attractive proposition as gas prices climb.

For the full year 2007, Target's net earnings were $2.85 billion, compared with $2.79 billion in fiscal 2006, the latter of which included an extra selling week. Earnings per share increased 3.9 percent to $3.33 from $3.21 a year ago.

Total revenue for the year increased 6.5 percent to $63.4 billion, fueled by new store expansion, a 3 percent increase in same-store sales, and contribution from credit-card operations.

"Our sense was that Target expects the challenging environment to persist through the first half of the year followed by a pickup in business next fall as they begin to cycle easier compares," says Peter Benedict, senior analyst for Wachovia. Target did not issue its own

 guidance for fiscal 2008.

Citigroup's Weinswig downgraded Target to sell on February 20, based on what she believed to be a "less powerful pricing message versus Wal-Mart," as consumers seek to trade down. She also thought it had lost its strength in women's apparel, in addition to suffering from an increased credit risk with its credit-card portfolio.


"While we have been impressed historically with management's disciplined execution of its strategy, we believe the current macro environment, weak credit markets, and lack of focus on women's apparel will weigh on the stock in the next year," says Weinswig in the February 20 note.