Jan. 8 (Bloomberg) -- Wal-Mart Stores Inc., Macy’s Inc. and Gap Inc. slashed earnings forecasts after the worst holiday- shopping season in 40 years, and the retail landscape may not improve heading into 2009.

Wal-Mart, the world’s biggest retailer, today said fourth- quarter earnings will be at most 94 cents a share, down from a November projection of as much as $1.07. Sales at stores open at least a year rose 1.7 percent last month, missing the 2.7 percent average of analysts’ estimates compiled by Retail Metrics Inc.

To attract customers amid rising unemployment and tightening credit, some U.S. retailers cut prices in December by as much as 70 percent. That threatens to erode profit margins in the fourth quarter, the most important of the year. The discounting may continue this year as the stores try to clear inventory.

“Consumers have become so accustomed to markdowns that nobody wants to pay full retail anymore,” said Craig Johnson, president of retail-consulting firm Customer Growth Partners LLC in New Canaan, Connecticut. “There’s going to be profit pressure in the first quarter.”

U.S. December same-store sales dropped 1.7 percent, the International Council of Shopping Centers reported. The New York-based trade group said sales declined 2.2 percent in the last two months of the year, the biggest such drop since it started tracking the data in 1969.

Most retailers record about half of their fourth-quarter sales in December, according to Betty Chen, an analyst at Wedbush Morgan Securities in San Francisco.

January same-store sales may decline 1 percent, the ICSC said. ICSC Chief Economist Michael Niemira said he doesn’t expect major changes.

‘Choppy’

“It’ll be very choppy,” he said. “It’ll be weak.”

Retail Metrics said comparable-store sales dropped 0.9 percent last month, less than it had estimated, as department stores used discounts to lure more shoppers. The Swampscott, Massachusetts-based researcher said its index hasn’t posted three consecutive monthly declines since it started collecting the data in 2000.

Some investors consider same-store sales the best measure of results because they exclude the effect of location openings and closings in the past year.

The U.S. government said today the number of Americans collecting unemployment benefits reached a 26-year high of 4.6 million. President-elect Barack Obama warned that without immediate government action, family incomes will drop and the unemployment rate could reach “double digits.”

‘Risk Aversion’

“If we have more job cuts, if the stimulus package that they’re talking about in Congress doesn’t make an immediate impact, there’s going to be continued risk aversion on the consumer side to spend money,” Dean Hiller, a partner in A.T. Kearney Management Consulting’s retail practice in Toronto, said in a phone interview.

Wal-Mart said apparel sales were weak in the U.S., Canada and Japan. The stock, which rose 18 percent last year, declined $4.16, or 7.5 percent, to $51.38 at 4 p.m. in New York Stock Exchange composite trading.

“The economy fell off the cliff in a short period of time,” Sarah Henry, a retail analyst at MFC Global Investment, said in a telephone interview. “Wal-Mart was a victim of the economy as much as anybody else.” Henry, based in Berwyn, Pennsylvania, helps manage $1 billion in assets, including Wal- Mart shares.

Sales at San Francisco-based Gap fell 14 percent in December. The largest U.S. clothing retailer cut its full-year profit forecast to a maximum of $1.30 a share from a previous high of $1.35 after December merchandise margins narrowed. The shares slid 64 cents, or 4.7 percent, to $12.92.

Macy’s Closes Stores

Macy’s cut its fourth-quarter profit forecast to as little as 90 cents a share from a previous minimum of $1.10. It also announced the closing of 11 of its 859 stores. The shares slipped 38 cents, or 3.4 percent, to $10.93. The second-largest U.S. department store plans a sale Jan. 10 with discounts as deep as 75 percent.

Nordstrom Inc., citing “competitive markdown pressure across the industry,” said it wouldn’t meet its fourth-quarter per-share profit forecast of 35 cents to 45 cents. Abercrombie & Fitch Co. said quarterly results would be “significantly below” its previous projection of as much as $1.05 a share.

“That does not bode well going into January-February, where we go into a lull period and there’s really no reason to buy until spring,” Adrienne Tennant, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia, told Bloomberg Television.

Same-store sales at luxury retailer Neiman Marcus Group Inc. sank 28 percent in December. Saks Inc. posted a 20 percent sales decline, twice as large as what analysts estimated, even after markdowns of as much as 70 percent on designer goods.

‘Manic’ Discounting

“I can’t remember anything going back at least to the mid- 1980s with this manic kind of deep discounting,” said Ken Perkins, president of Retail Metrics. “Retailers don’t want customers to be trained to only buy if it’s 50 percent off.”

J.Crew Group Inc., which sells $200 cashmere sweaters, slashed its full-year forecast for a fourth time. In the last quarter of the year, it predicts a loss of as much as 29 cents a share, down from profit of as much as 10 cents, because of “aggressive inventory actions” to clear out merchandise.

Limited Brands Inc., owner of the Victoria’s Secret chain; teen retailers American Eagle Outfitters Inc. and Pacific Sunwear of California Inc.; and Bebe Stores Inc. also reduced forecasts.

There were some bright spots. J.C. Penney Co. same-store sales fell 8.1 percent, less than it and analysts had estimated. Kohl’s Corp.’s dropped 1.4 percent, helped by last-minute shopping and “strong post-Christmas business,” it said. Analysts had anticipated a 5.9 percent decline.

Target, Aeropostale

Target Corp., Wal-Mart’s smaller rival, posted a 4.1 percent loss in December comparable-store sales, beating Retail Metrics’ anticipated 8.8 percent drop. Aeropostale Inc. and Ross Stores Inc. raised forecasts.

Sears Holdings Corp., the largest U.S. department-store company, forecast fourth-quarter profit that exceeded analysts’ projections. Its sales fell 7.3 percent in December. The shares climbed $9.43, or 23 percent, to $49.98 on the Nasdaq Stock Market and earlier reached $50.36, their biggest jump in five years.

Customer Growth’s Johnson said January discounts are deeper than a year ago because companies such as Abercrombie & Fitch and J.Crew still have too much inventory after trying to hold to full price.

“January will be a heavy clearance month, with further downward margins pressure,” Perkins said.

To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.

Last Updated: January 8, 2009 16:24 EST