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Results issued yesterday by the National Retail Federation indicate that while many U.S. retailers posted disappointing December sales figures, upscale stores and some discounters did fairly well. The Federation forecasts that holiday sales will be up 5% for 2006, shy of last year's 5.4%, with November's 6.3% retail sales figure compensating somewhat for disappointing December results. Weather was a factor across the sector: in some areas, blizzards forced the closing of stores; while in others, temperatures were so warm that they eroded consumer interest in cold-weather merchandise. Online retail also appears to have cut into brick-and-mortar sales. Apparel retailers had difficulty this holiday season -- particularly the Gap, which took a 9% hit to same-store sales and will have to slash prices dramatically to clear merchandise. Target, on the other hand, enjoyed a 4.1% sales increase, while Nordstrom saw sales rise 9%. Federated Department Stores saw a sales increase of 4.4%. Wal-Mart surprised to the upside with a 1.6% rise in December over last year's sales -- not a spectacular performance, but ahead of its forecast of less than 1%. Wal-Mart is predicting weak sales results to continue into the new year, reflecting store disruptions for remodeling, difficult comparisons with last year's hurricane-related sales surge and unusually strong gift-card redemption figures, and intense competition from grocery chains. Wal-Mart has reiterated its EPS forecast of $0.88-0.92 for Q4 and $2.85-2.89 for the fiscal year.

• Sources: Bloomberg, Business Week, Wall Street Journal, USA Today
• Related commentary: Retailers' Heavy Discounting Should Pressure Q4 Margins, Holiday Retail Sales Falling Short, The Grinch Stole Christmas from Brick and Mortar Retailers...But Online Sellers Are Smiling, U.S. Retail Sales Relatively Strong as Holiday Season Ends
• Potentially impacted stocks and ETFs: The Gap (GPS), Nordstrom (JWM), Wal-Mart (WMT), Federated Department Stores (FD), Target (TGT). ETFs: Retail HOLDRs (RTH), Consumer Discretionary SPDR (XLY), Market 2000 HOLDRs (MKH), iShares Russell 1000 Growth Index (IWF)

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Source: Retail Sector Closes the Year on (Mostly) Down Note