2nd UPDATE: Retailers' Sales Beat Views, Bolstering Optimism

Retailers' planning paid off, allowing them to put the abysmal Christmas 2008 behind them and show improvements in December same-store sales that are spurring them to raise fourth-quarter estimates.

Retailers approached the season with much less inventory, less-expensive merchandise and in many case fewer stores that were dragging on their same-store sales.

The result was a considerable beat to analysts' expectations as sales at stores open at least a year rose 2.9%, much better than Wall Street's 2% projection, according to Thomson Reuters.

A range of retailers raised estimates, including department store Macy's Inc. (M), discounter Target Corp. (TGT), Victoria's Secret owner Limited Brands Inc. (LTD), teen retailer American Eagle Outfitters Inc. (AEO) and Ulta Salon Cosmetics & Fragrance Inc. (ULTA). Retailers had set their sights low when they offered fourth-quarter outlooks during late fall.

The improved sales, though coming off of very poor figures in 2008, do show that some retailers are beginning to increase their top lines. This will be necessary in the year ahead since cost cutting measures that protected profits and margins in 2009 are played out to a large degree.

"You could say we're bouncing along the bottom with some marginal upside," said Doug Conn, managing director at Hexagon Securities. "Companies are still in transition and dealing with this new economy and consumer."

While many retailers beat expectations by a wide margin, some still seem to be coming to grips with the economic downturn. J.C. Penney Corp. (JCP) posted a same-store sales drop of 3.8% that was essentially in line with analysts' projections. While other retailers saw improvement in home goods, like towels, and small appliances, J.C. Penney said its home category experienced the weakest sales during December. Barnes & Noble Inc. (BKS) lowered its third quarter forecast on Thursday, citing weak holiday sales.

Among more generalized apparel sellers, those with a focus on value performed best. TJX Cos. (TJX), which buys items below wholesale price and sells them at steep discounts at its T.J. Maxx and Marshalls stores, posted a 14% same-store sales jump, more than double analysts' expectations. It raised earnings guidance. Gap Inc.'s (GPS) and Limited Brands Inc.'s (LTD) sales didn't quite achieve analysts targets, but results were good enough for Limited to boost its quarterly earnings guidance.

Department stores beat views across the board, with Saks Inc. (SKS) and Nordstrom Inc. (JWN) particularly standing out in spite of their reputation for higher-priced goods, posting 9.9% and 7.4% sales increases, respectively. Saks has been taking steps this year to not only cut inventory, but introduce less-costly merchandise.

Promotions during this holiday season were more surgical and inventory planning more rational than the panicked discount pricing that set in last year.

Unusually cold weather and big snowstorms along the East Coast were a curveball, but stores seemed to compensate for lost traffic from weather with online sales and strong business in the post-Christmas week. Macy's online sales were up 29%, for example.

Retailers' sales comparisons started to ease in September and increased the likelihood of year-over-year gains, after stores suffered for more than a year as consumers cut spending. This December's results follow last year's 3.6% drop, excluding Wal-Mart Stores Inc. (WMT), according to Thomson Reuters. Wal-Mart stopped issuing monthly sales figures in May.

Other discounters reported solid results for December. BJ's Wholesale Club Inc. (BJ) posted a 2.7% increase excluding gasoline sales, and the company said the growth would have been double that absent the mid-December snowstorm that socked the East. Larger rival Costco Wholesale Corp. (COST) had a 2% rise in the U.S. minus gasoline. Unadjusted global same-store sales rose 9%, topping expectations. Target Corp. (TGT) surprised the Street with comparable-sales growth last month after two months of year-on-year declines and said its fourth-quarter profit would beat expectations, too.

Teen and child retailers were generally performing well. Again recording weakness was Abercrombie & Fitch Co. (ANF). Analysts had worries that the company's eagerness to discount this year--after keeping up an institutional bias to avoid promotions well into the recession--would hurt the retailer. Its same store sales dropped a worse-than-seen 19%, on top of a 24% drop the previous year.

But on the other hand Buckle Inc.'s (BKE) 6.6% increase beat expectations in spite of a difficult comparison to the prior-year period, when it had double-digit sales growth. The company has been posting revenue and comparable sales increase throughout the recession. Aeropostale Inc. (ARO), another strong performer in the space, boosted its quarterly profit view.

Sears Holdings Corp. (SHLD) set its fiscal fourth-quarter earnings estimate well above analysts' expectations, as it reported same-store sales growth last month thanks to strength at Kmart. Sears is now trading over $100, up 13% to $100.21 and at a 52-week high.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

(Joan E. Solsman contributed to this article.)

Abercrombie and Fitch (NYSE:ANF)
Historical Stock Chart
From Jun 2024 to Jul 2024