The nation's largest merchants posted 6% sales growth in November over the year-ago period, according to a tally by Thomson Reuters. That's far ahead of the 3% to 4% growth most analysts had forecast. Thomson Reuters' own projection had called for a 3.6% boost.
Retailers reported good traffic through most of the month, with a surge over the Black Friday weekend following Thanksgiving, the traditional start to the holiday shopping season. Sales were aided by strong online promotions and extended hours at many stores. Some merchants -- including Walmart, (WMT) Toys 'R' Us and Sears Holdings' (SHLD) Kmart chain -- opened on Thanksgiving Day, and most had Black Friday deals available online on the holiday.
Holiday Weekend Sales Records
"Retailers came out aggressively and got rewarded," says Sherif Mityas, a partner in the retail practice at consultant A.T. Kearney. Merchants laid out a wider breadth of deals across the holiday weekend, he says, rather than the usual concentration on a handful of door-busters, and shoppers responded.
Several retailers reported record sales over the holiday weekend. Limited Brands (LTD), which posted 10% higher comparable sales (for stores open at least a year), said its Victoria's Secret chain and its website both set a single-day selling record on Black Friday. J.C. Penney (JCP), which posted sales growth of 9.2%, also reported the biggest Black Friday in its history, and sales at jcp.com were up 12% year-over-year on that day.
"Holiday 2010 has started on a merry note," wrote Brian Sozzi, retail analyst at Wall Street Strategies, in a note to investors. He speculated that if December sales also beat expectations, more retailers will follow the lead of Guess (GES) and American Eagle Outfitters (AOE) and return some of their extra free cash to investors via share repurchases or special dividends. But he cautioned that retail stock prices are creeping up, which could turn off some investors.
While most retailers were cautious about raising expectations for the rest of the holidays, Macy's (M) was emboldened by better-than-expected sales growth of 6.1% to raise its fourth-quarter guidance. The Bloomingdale's parent now forecasts earnings per share of $1.44 to $1.49, up from $1.42 to $1.47. And it increased its December sales forecast to call for growth of 3.5% to 4.5%, up from 3% to 4%.
Waiting for More Deals
This holiday season is forecast to be better than the last two years, with consumer confidence edging into a slight improvement. A monthly survey from RBC Capital markets noted that for the first time this year, more consumers said they expect their local economy to get stronger in the next sixth months (24%) than those saying it will get weaker (20%). Several analysts have also noted that the number of shoppers who were buying gifts for themselves on Black Friday was higher than in recent years, and the percentage of holiday shopping completed was smaller, both signs that holiday sales have more room to grow.
But A.T. Kearney's Mityas warns that shoppers are still in deal-hunting mode and will likely hold back until the next wave of promotions arrives closer to Christmas. "Everyone is going to take a breath," he says. "There's still enough uncertainty around the economy."
With no must-have items this year, shoppers don't feel the need to rush to the store unless there is a deal to be had, says Mityas. Gifts this year will be basic, moderately priced items, so shoppers are willing to wait until they can find them at the right price.
"No question, consumers are still playing let's-make-a-deal," says Mityas. "They'll wait until retailers blink again."