Surprises To Upside Seen When Retailers Report December Sales

Retailers are expected to wrap up the holiday season with a modest gain when they report December same-store sales, with key profit measures looking sound as stores were much less promotional and some retailers may be able to lift fourth-quarter expectations.

"Despite notable headwinds like unemployment, tight credit, and untimely storms, I believe consumers managed to increase their December spending versus last year," said Peter Benedict, retail analyst at Robert W. Baird & Co.

Same-store sales, or sales open a year or more, are expected to rise 2% among the 30 publicly-traded large retailers tracked by Thomson Reuters, when they report figures on Thursday. The showing, on top of November's 0.5% rise, would place holiday season growth for these retailers at roughly 1.2% from 2008, which saw the worst holiday sales decline on record.

"We could see upward earnings revisions," said Daniel Binder, retail analyst at Jefferies.

November and December account for roughly 20% of retailers' annual sales, with most of the buying occurring in December, the National Retail Federation said. November and December are also the first two months of the fourth quarter for most retailers.

Margins, which gauge profitability, should be strong in the fourth quarter because tight inventory controls allowed for a narrower promotional approach and planned discounts rather than the reactive promotions the year before when holiday merchandise didn't move, said Amy Noblin, retail analyst at Pali Capital.

December sales also stand to gain from online activity during the Black Friday weekend in late November, since most retialers book the revenue when the merchandise is shipped. There was also an extra buying day during the holiday period this year, which could make up for some sales that were lost during large snowstorms that hit parts of the country last month.

Discount mass merchants like Costco Wholesale Corp. (COST) and BJ's Wholesale Club Inc. (BJ) are again expected to show the most comparable-store growth for December at 3.9%, while apparel retailers are pegged for the biggest decline, at 4.3%, Thomson Reuters said.

Wal-Mart Stores Inc. (WMT) is part of the mass merchant group, but will not be reporting same-store sales after halting the practice last year. Jefferies Group feels the nation's biggest retailer had strong December results. Wal-Mart delivered a "clear holiday sales message, combined with more aggressive pricing and easier comparisons" that produced a low-single-digit percentage gain, putting Jefferies' quarter-to-date estimate toward the upper end of Wal-Mart's forecast for a 1% gain to a 1% drop.

Department stores are estimated to show a 0.3% drop after a 5.9% decline in December 2008. The anticipated improvement prompted some analysts this week to predict that Macy's Inc. (M) and Kohl's Corp. (KSS) may raise, or at least, reiterate fourth-quarter guidance, which for many department stores was very modest after a tough start to November.

Among high-end department stores, Saks Inc. (SKS) is expected to show 2.8% rise in same-store sales following a 19.8% drop in December 2008 as it better handled inventory and promotions this year.

The pressure is now on retailers to deliver sales growth in 2010, as inventory and expense cutting that allowed them to remain profitable last year have largely been played out.

Retailers may face a tough go in the near term, following the holiday release of some pent-up buying demand, but consumers may be more active toward mid-year. "Consumers remain rather pessimistic about their short-term (income) prospects and this will likely continue to play a key role in spending decisions in early 2010," said Lynn Franco, director of The Conference Board's Consumer Research Center.

There are greater expectations for conditions to improve over the next six months based on a more optimistic outlook for business and labor market conditions, Franco said, and this could aid discretionary spending.

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

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