Retailers are adapting to a new era of lowered expectations. September sales results scraped a razor-thin gain above last year's depressing sales, but that was good enough to made many merchants happy. Even store chains whose sales were down were raising their guidance to investors for their third-quarter reports coming in November. Most trotted out the better-than-expected line they've been using since summer.

Overall, a tally by the International Council of Shopping Centers calculated that same-store sales rose 0.1 percent in September, the first year-over-year increase since July 2008. Warehouse clubs sales were up 4.2 percent after factoring out the effect of cheaper gasoline prices, and drug stores were up 3.7 percent. But department stores are still suffering, with sales declines of 2.3 percent.
The tally excludes Walmart Stores Inc. (WMT), which doesn't report monthly sales numbers.

"To be sure, the retail recovery will be uneven, and growth will be in spurts and fits, but it seems increasingly clear that it is a recovery," ICSC chief economist Michael Niemira concluded in the report.

In a normal business cycle, those numbers would be nothing to write home about -- especially in comparison to last September, when retail ground to a halt. Also, this September got a boost from one full week of back-to-school shopping, thanks to a late Labor Day. But in this recession year, any old ground ball gets cheered like a triple.

Merchants prepared for the worst, made cuts, and are now seeing better results than they expected, says Ethan Anderson, senior portfolio manager at Rehmann Financial in Grand Rapids, Michigan. "People were throwing around comparisons between this downturn to the Great Depression pretty freely last year," Anderson says. "When it gets right down to it, things are not going to be wonderful, but we're not falling off a cliff anymore."

Gas prices also have come down considerably since their peak this time last year, which translates into more money for discretionary spending, Anderson says. And nearly $400 billion in federal stimulus money will begin flowing into the economy in the fourth quarter and beyond, which will stimulate spending too, Anderson notes.

Kohl's Corp. (KSS), which was among the companies to report both net and comparable-store sales increases, pushed up its earnings guidance and now expects the quarter just ended will add up to 52 to 54 cents in earnings per share, instead of the 40 to 44 cents it had expected earlier.

But even companies that saw sales go down upgraded their guidance, because those lower sales were still -- all together now -- better than expected. JCPenney Inc. (JCP), which posted a drop of 1.4 percent in same-store sales, had expected a 3 to 6 percent drop, so it boosted its guidance, and now expects to report three to 10 cents per share in third-quarter earnings, instead of coming in somewhere between a five-cent loss and five-cent gain. And Target Corp. (TGT) said it now expects to beat analysts' third quarter estimate of 43 cents per share because its September comparable sales drop of 1.7 percent was less than it had forecast.

And some areas are definitely showing signs of real improvement. Many stores reported that apparel sales, which had taken a beating since last year, are rising: a sign that consumers are starting to loosen up and shop for things other than necessities. Limited Brands Inc. (LTD), parent of Victoria's Secret, racked up $654.8 million in sales -- up 1 percent above the same stores last year, although it had expected that comparable sales would be down slightly. "Some people are coming out of their bomb shelters," says Anderson.

Still, as many retail analysts warn, consumers have become more frugal in this recession, and fear of unemployment still rules. When shoppers do come out, they don't spend as much. Target noted its sales results were down despite having more transactions, because the average ticket per transaction is down. Indeed, a poll from consultants Retail Forward found that 47 percent of shoppers polled in September said they plan to spend less in the next month, up from 38 percent in August, and the number planning to spend the same fell to 44 percent from 52 percent.

"September's numbers are a good sign that retail sales are on a path to recovery," said retail chief economist Frank Badillo in his report. "But it will be a slow, bumpy road."

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