By Juveria Tabassum and Ananya Mariam Rajesh
(Reuters) -Several apparel retailers including Lululemon (NASDAQ:LULU), Abercrombie & Fitch and American Eagle (NYSE:AEO) received a holiday-quarter sales lift on resilient demand from cost-conscious shoppers but heavy discounting raised fears of a margin hit at some firms.
Retailers like Amazon (NASDAQ:AMZN) and Target (NYSE:TGT) discounted their wares both early and at steep levels for the holiday season as they tried do draw in cost-conscious consumers, who took advantage of those deals, especially online.
While that helped boost sales, it came at a cost to retailers' margins, which could show up in the coming earnings season.
In fact, the apparel category had the highest discount rates in the U.S. at about 33% this holiday season, according to data from Salesforce (NYSE:CRM), as companies compete with newer brands and online sellers.
Abercrombie's shares fell about 18% as the company kept its fourth-quarter margin forecast intact, even as it raised its sales growth target to between 7% and 8%.
"The retailers that are performing are ones that are putting out differentiated merchandise that people want to buy and they're also appealing to more higher-income consumers," said Morningstar analyst David Swartz.
Lululemon, which has focused on introducing new colors and styles to its portfolio to allow for more full-price selling of its pricey athleisure pieces, bumped up its margin and profit forecasts along with its sales target.
Similarly, American Eagle lifted its operating profit target, and said quarter-to-date comparable sales were up in low single digit, ahead of its earlier forecast of a 1% rise.
Department store operator Nordstrom (NYSE:JWN) raised its annual forecast last week on the back of robust sales during the holidays as deep discounts on apparel and home decor items helped attract deal-hunting customers to its outlets.
On the other hand, Macy's (NYSE:M) continued to struggle to drum up demand at its namesake stores, and said it expects fourth-quarter net sales to be at or slightly below the low-end of its previously issued range of $7.8 billion to $8 billion.
Macy's shares were down nearly 5%, while Lululemon and American Eagle shares reversed premarket gains in early trade on Monday, falling 0.5% and 4.4% amid broader market declines.
"We continue to believe broad-based macro concerns may weigh on the storytelling and general perception, but the reality is there are companies winning, and companies lagging. That is healthy. That is market share," said BMO Capital Markets analyst Simeon Siegel.
People have also bought more on their mobile phones, comparing prices, as well as shipping times and return policies with the help of artificial intelligence-enabled chatbots as they waded through a highly promotional holiday retail environment.
Reports from Salesforce and Adobe (NASDAQ:ADBE) Analytics showed that online spending during the crucial holiday season that typically runs from November through December rose more than the initial forecasts made by the data firms.