2nd UPDATE: Mixed October Retail Sales Set Stage For Holidays

Retailers in October set the stage for a fiercely competitive Christmas, with price wars, promotions and competitive positioning spurring most of the sales gains and suggesting that shoppers will be aggressively wooed during the holiday season.

"There is a market-share war that is heating up as we move into the holiday season and some retailers evidently are already pulling out the big guns, creating winners and losers," said John Long, retail strategist at Kurt Salmon Associates.

Macy's Inc. (M) was one of the early winners, posting a 2.5% increase in October same-store sales when a 1.6% gain was projected. The department store raised its earnings and same-store sales growth estimate for the second half of the year. "While we experienced some softness in sales early in October given the unseasonably warm weather, we ended the month with a strong trend going into the holiday selling season," Chief Executive Terry Lundgren said.

Macy's may be taking market share from two of its chief rivals. J.C. Penney Co. (JCP) reported a 1.9% drop in comparable-store sales and Kohl's Corp. (KSS) posted a 2.5% decline, when both department stores were expected to report gains.

"Strong performance in the second half of the month partially offset lower sales in the first two weeks of the month due to unseasonable weather," Kohl CEO Kevin Mansell said.

Target Corp. (TGT) posted a same-store sales increase of 1.7%, at the low end of the company's expectations but above the 1.5% increase expected by analysts. The mass merchant in October began to give customers 5% off when they use its Visa or debit cards and has also aggressively been remodeling stores, with an emphasis on adding groceries as a way of bringing shoppers in. Target, however, said the environment remains uncertain.

The 28 retailers that report same-store sales, or sales at stores open at least a year, posted 1.6% growth, equal to expectations of analysts polled by Thomson Reuters, although the sales performance on a store-by-store basis was uneven. Retailers posted 1.8% growth a year ago and, as a group, are now in their second month of comparing against positive numbers after a year of same-store sales declines. Wal-Mart Stores Inc. (WMT) does not report same-store sales.

Luxury fared well in October with Saks Inc. (SKS) posting an 8.1% jump in same-store sales for the month, sailing past the 2% increase analysts had expected. The company said the strongest sellers at its Saks Fifth Avenue stores were women's shoes, women's apparel, men's sportswear, cosmetics, and fragrances. Saks said it continues to expect "comparable store sales growth in the mid-single digit range" in the second half of the year.

Nordstrom Inc. (JWN) also beat expectations, posting a 3.4% increase in same-store sales, compared with the 2.7% increase analysts were expecting.

Other winners include Limited Brands Inc. (LTD), which sharply boosted its fiscal third-quarter profit target after reporting October same-store sales jumped a bigger-than-expected 9%, as the parent of Victoria's Secret and Bath & Body Works continues its resurgence of late.

Aeropostale Inc. (ARO) appears to be a victim of the pricing wars among teen retailers, posting a 2% drop in October same-store sales when analysts expected a 3.1% increase. The company is being pinched as other chains that sell teen apparel, such as Abercrombie & Fitch Co. (ANF) and American Eagle Outfitters Inc. (AEO) have been to lower prices, encroaching on Aeropostale's corner of the market.

Also in the teen sector, Zumiez Inc. (ZUMZ), which has been on a tear, posted a 22% jump in comparable-store sales when a 7.8% increase was expected. Zumiez lifted its third-quarter earnings projection, citing better-than-expected demand and margins. Hot Topic Inc. (HOTT), however, posted an 8.5% same-store-sales drop when a 3.2% decline was projected, and said it expects earnings for the quarter ended Saturday to be at the low end of the target it gave in August.

The results are giving a taste of the measures retailers are going to in order to book sales as they come into their most important sales period of the year.

But the sales gains by some at the expense of others raises margin issues for those that are seeing stronger sales. "This type of behavior can be destructive," said Ed Yruma, retail analyst at KeyBanc Capital Markets. "It seems that some of the companies are buying the comp."

Gap Inc. (GPS), for instance, reported a 2% increase in same-store sales when a 2.5% drop was expected, and said its merchandise margins for the third quarter are expected to be below those of last year.

But retailers are up against consumers who are still not comfortable with the economy. Projections for holiday season sales vary, ranging from a slight loss to over 4% growth, reflecting even economists' uncertainty about the season.

Unemployment remains close to 10% and consumer confidence is still very shy of robust, factors that will play into buying decisions.

The situation has caused some retailers to already begin promoting Christmas. Sears Holdings Corp. (SHLD) in October started to advertise "Black Friday" specials. Toys "R" Us Inc. is promoting its catalogue of holiday toys and gadgets. In a sign of the kind of approach many retailers may take this holiday season, the Toys "R" Us catalogue has an application for smartphones and is Internet-friendly.

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

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