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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.

Wal-Mart will start selling iPhones by the end of the year, but it is unlikely that they will be available in time to take advantage of holiday sales.

Of more importance, perhaps, is that the phone may be sold for its lowest price yet—$99.

The rumors started circulating last week that a partnership between Wal-Mart (nyse: WMT - news - people ) and Apple (nasdaq: AAPL - news - people ) may be in the works, but Bloomberg confirmed today that employees at five California stores said that Wal-Mart will offer iPhones by the end of December, likely after Christmas.

Two of the representatives said the store will carry two models.

Bloomberg said analysts are suspecting that Apple may use the partnership to sell a discontinued 4-gigabyte version, which will allow it to hit what is considered a low price point for a smartphone.

Wal-Mart will be the second outside chain to be allowed to sell the device, following Best Buy (nyse: BBY - news - people ).

Currently, two models are for sale—an 8-gigabyte and 16-gigabyte version for $199 and $299.

Apple Inc.'s famous veil of secrecy appears to have stretched thin in trying to cover thousands and thousands of Wal-Mart stores.

A Wal-Mart employee in Uniondale, N.Y., told The Associated Press on Monday that the store will start selling Apple's iPhone, confirming media reports over the weekend.

The employee, who would not give his name, did not know when the phones would go on sale, and said the store had no merchandise yet. The San Jose Mercury News reported late Friday that store employees in California said the phone would be on sale by the last week of December, and maybe before Christmas.

Wal-Mart Stores Inc. would be the second independent retail chain after Best Buy Inc. to sell the phone. The phone is also sold at Apple and AT&T Inc. stores.

Wal-Mart spokeswoman Anna Taylor said the company had no announcement about iPhone sales. Apple was officially quiet as well. As rumors about the iPhone at Wal-Mart have mounted in recent weeks, Apple has neither confirmed nor denied them. The company did not return a message Monday.

From the launch of the second-generation iPhone on July 11 to the end of September, Apple sold 6.9 million units, making it one of the world's most popular phones. The iPhone 3G is sold in two versions, with 8 or 16 gigabytes of memory. In the U.S., the price is $199 or $299, respectively.

Apple shares rose $4.55, or 4.8 percent, to $98.55 in midday trading as U.S. market indexes also rose. Wal-Mart shares fell 96 cents, or 1.6 percent, to $57.25.

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