Wal-Mart Registers Disappointment

Wal-Mart, the last bastion of U.S. retail strength, has cracked. The chain cut its earnings outlook on Thursday after posting weaker-than-expected December sales.

Same-store sales at Wal-Mart (nyse: WMT - news - people ) rose 1.7% in December, with a 1.9% rise at Wal-Mart U.S. and a 0.1% rise at warehouse operator Sam's Club. The numbers were weak next to what was expected. Wall Street's analysts had, on average, had expected a rise of 2.8%, while Wal-Mart itself had expected a gain of 1.0% to 3.0%.

Total sales for the five weeks ended Jan. 1 edged down 0.1%, to $46.51 billion, from $46.57 billion last year.

Investors didn’t take Thursday's news well, knocking Wal-Mart's shares down 8.1%, or $4.51, to $31.03, in afternoon trading, and taking the rest of the stock market with it. Ironically, the rest of the retail sector fared rather well. Although same-store sales in December fell througout the industry, many companies did better than Wall Street had expected.

As measured by the SPDR S&P Retail (nyse: XRT - news - people ) exchange-traded fund, the sector gained 0.8%, or 17 cents, to $21.37, with Target (nyse: TGT - news - people ) rising 1.3%, Cosco (nyse: COST - news - people ) increasing 1.6% and Kohl's (nyse: KSS - news - people ) jumping 3.6%.

Macy's (nyse: M - news - people ) fell somewhere in between. The New York-based department-store chain saw a drop in December same-store sales, but it beat Wall Street's expectations. (See "Macy's Tightens Its Belt, Sears Soars.") Nonetheless, it announced it was shutting 11 stores and cutting its fourth-quarter outlook.

"No matter how much retailers discount merchandise, the bottom line is consumers are just spending less," said Mark DeGennaro, managing director at Gruppo, Levy, a mergers-and-acquisitions firm.