Retail Earnings, Sales Tallies Hint at Mildly Merry Christmas for Stores The third-quarter earnings season got off to a mildly optimistic start for retailers, with department stores expecting the colder weather will heat up holiday sales, even as shoppers continue to seek cheap deals and generally hold back on spending. And Monday's release of the Commerce Department's retail sales tally is expected to boost hopes for the holiday shopping season.

Macy's (M), J.C. Penney (JCP) and Kohl's (KSS) reported shoppers are coming out to stores, but their spending is still very measured, which is putting pressure on the retailers' profits. Even Macy's, which beat expectations and upgraded its guidance for the rest of the year, admitted it has to be "thoughtful about pricing decisions," according to CFO Karen Hoguet.

The parent of Bloomingdale's posted earnings of 2 cents per share during the quarter, better than the eight-cent loss it had last year, and comparable sales (for stores open a year) were up 3.9%. It raised its guidance for the second half to $1.50 to $1.55 in earnings per share, from $1.45 to $1.50 and $1.94 to $1.99 for the full year from $1.89 to $1.94.

Many retailers have noticed their sales growth this year has come from an increase in the number of shoppers, who are spending less per shopping trip. Kevin Mansell, CEO of Kohl's, said he expects that trend to continue during the fourth quarter and into next year. Kohl's, which has shown consistent sales growth this year, posted net income of 63 cents per share in third quarter, flat from a year ago, and 1.8% growth in comparable sales; CFO Wes McDonald noted an 8.3% increase in traffic was offset by a drop of 6.5% in the average transaction value.

"We knew the consumer was not going to help us much this year," said Penney CEO Mike Ullman. "We had to create our own growth." Initiatives such as new Liz Claiborne and MNG by Mango lines helped the department store post third-quarter net income of 19 cents per share, up from 11 cents last year, and comparable sales growth of 1.9%.

Units sold per transaction are up and the number of units sold is up, but customers are opting for items that are "more sharply priced," said CFO Bob Cavanaugh. That's why Penney has adjusted its selection to focus more on attracting shoppers with items in the "good" and "better " range, rather than higher-priced "best" purchases, said Ullman.

Year-Over-Year Sales Growth Strongest Since April


Department stores, the middle tier of retail, have been affected by the downturn more than either luxury or discount retailers, and are still feeling the effects amid the lukewarm recovery. But October sales numbers are encouraging for the whole of retail, showing shopper momentum going into the stretch from Thanksgiving to Christmas Day, when retailers make the bulk of the year's profits.

Retail sales excluding automobiles grew 3.3% in October, according to the tallies from MasterCard Advisors SpendingPulse. The tally, which tracks sales by credit card and other payment types, tends to closely predict the Commerce Department figures, due out Monday. Those totals are the most accurate picture of consumer spending, since they include gas and auto sales, as well as the figures of retailers who don't report publicly their monthly tallies, such as Walmart Stores (WMT).

The numbers are the strongest year-over-year growth seen since April, when sales dropped into a "summer lull," said Kamalesh Rao, director of economic research for MasterCard Advisors SpendingPulse. The figures are also more than double the growth rate in September, which shows momentum, he said.

Expect Lots of Deals, Promotions


And shoppers are doing more discretionary spending, rather than just buying necessities and replacing worn items, said Rao. He noted that segments such as restaurants and electronics are also showing improvement.

"We're seeing an across-the-board rebound in discretionary spending," he said. For sectors such as apparel to post increases, all shopper segments have to be spending, not just wealthy consumers, said Rao.

"It's hard to move those sectors unless a lot of people are buying," he said.

But as the retailers noted, the shoppers are picking and choosing purchases carefully. The department stores all said they expect promotions will be as widespread as last year. The environment has been very promotional for a while, said Kohl's Mansell.

However, nobody is expecting wild markdowns like those seen in 2008, when stores were overstocked as the recession hit.

"I don't think we will experience irrational behavior," said Ullman. "I suspect that there won't be any big surprises."


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guevindna

Christmas is NOT about spending money for most Americans this year....again. My family does not plan on "bailing out" business with money we don't have to spend anyway. Until JOBS are availabale and pay well enough to live, when I don't fear for my mortgage month to month....MAYBE in 3 years I will spend soem money at the holidays. Otherwise the belt is pulled IN!

November 15 2010 at 6:44 AM Report abuse +1 rate up rate down Reply
Tommy

Stay home this year. Don't buy anything make your own gifts. We have to show wall street and our government that we are tired of this Greedy, political corruption not only in Washington but also in big business.

November 15 2010 at 6:38 AM Report abuse +1 rate up rate down Reply
ultraz2

JACKASSES THAT CATER TO THE LOBBIEST OF THE RICH RUN WASHINGTON DC BECOME AN INDEPENDENT PARTY MEMBER AND VOTE THESE JERKS OUT---TERM LIMITS NOW

November 14 2010 at 11:03 PM Report abuse +1 rate up rate down Reply
ultraz2

Until the ultra rich pay their fair share of taxes and take less profits, the economy will remain the same. The only other hope is a major break thru in energy , then people may have some money to spend . UNTIL THEN THERE WILL BE NO RECOVERY.

November 14 2010 at 10:58 PM Report abuse +1 rate up rate down Reply
Val

I'm glad someone is finding the extra money for Christmas besides the wealthy luxury purchasers. As an older Baby Boomer with property taxes, increased health insurance, medications, food and other necessity costs, I will put up the artificial tree and send cards this year. No more brain-washed consuming and going into debt because it's expected at Christmas for me. Hopefully the gov't will realize that the people can't spend money they don't have, which is bad news for a capitalist consumer society.

November 14 2010 at 9:50 PM Report abuse +1 rate up rate down Reply
iamjah

Dont hold your breath waiting for me to run and buy a bunch of Chinese trash....

November 14 2010 at 8:26 PM Report abuse +2 rate up rate down Reply
DAVE

Most of us have to much junk already, so why buy more. I'm not spending anything at any mall this year. Nothing ever with sears or walmart (they to be open Thanksgiving) Buy local and don't burn plastic, because that's done by suckers.

November 14 2010 at 6:37 PM Report abuse +1 rate up rate down Reply
jkennedy806

You should see the amount of comments on Walmart and sears open on thanksgiving. People are angry. Maybe we should just boycott the RETAIL Christmas this year. There are alot of alternatives, go to craft shows, and farm stores, The farm stores have jellies and jams, great wreaths, old wooden toys all made here in your local area. Start supporting your neighborhood, county area, even state, and have a nice day out and experience NO MALLS NO RETAIL. Case in point, I can go to two chocolate shops both have homemade candies. Everyone loves candy for christmas.

November 14 2010 at 3:19 PM Report abuse +6 rate up rate down Reply
1 reply to jkennedy806's comment
Jackson

I agree with DAVE and jKennedy806 whole-heartedly; refuse to consume whenever possible and consume at minimum levels only when necessary. Since all of the products on American shelves are made in China, if we buy we will only be enabling a Chinese economic recovery. I say BOYCOTT THE BASTARDS!

November 14 2010 at 6:53 PM Report abuse +2 rate up rate down Reply
AL CONFER

Sorry! I'm NOT going into debt for anyone, plain and simple. Retirees did not get a raise last year or this year an still things go up and I refuse to play the game. Until things come down to reality, the junk can sit on the shelves as far as I'm concerned. Going into debt at Christmas time is just plain nuts. It's as if people won't love you if you don't go into debt and how stupid is that? Smart people are NOT going into debt, but the stupid people always do and then return the junk after Christmas, and yes they do that.

November 14 2010 at 12:34 PM Report abuse +8 rate up rate down Reply
1 reply to AL CONFER's comment
Jackson

Go for it, AL! My wife and I are doing the same thing. Did you know that coming up in December our fearless elected reps and senators will all be pulling their annual cost of living allowances (COLA)? These rat bastards all get more than $5,000.00 each just before Christmas every year; I call it their annual Christmas COLA Bonus. Meanwhile, everyone on Social Security gets ZILCH.

November 14 2010 at 7:00 PM Report abuse +1 rate up rate down Reply
Jackson

Never Pay Retail for Anything in America again! Everything on store shelves in our country (even Goodyear and Goodrich tires now-a-days) was made for pennies on the dollar in either Malaysia, Myanmar, India, VietNam, Philippines and China; even that sexy new All American Chevy Camero is being made by union shops in Canada. Tell all of these cutthroat bedouin retailers to stuff their full retail prices up their Cheneys and refuse to buy from them until prices are cut in half! For the Republic! John George

November 14 2010 at 10:41 AM Report abuse +4 rate up rate down Reply