A firm stand on prices and a surge of last-minute holiday shoppers gave retailers a big present: modest December sales gains and healthy profits, a big improvement from last year's Christmas catastrophe.
Many retailers raised their fourth-quarter outlooks Thursday. A big reason why: Stores never had to resort to drastic price-cutting after keeping inventories lean.
The solid finish capped a rough year that saw the biggest sales decline in at least four decades, according to the International Council of Shopping Centers.
December sales rose 2.8 percent compared with a year ago, according to the ICSC sales index; sales for the year fell 2 percent from all of 2008. For November and December combined, the index rose 1.8 percent, better than the group's estimate for a 1 percent gain.
Last year, holiday sales fell 5.8 percent, the biggest sales decline for the key period in at least four decades.
As merchants reported results Thursday, a diverse group of retailers including Costco Wholesale, Target, Macy's and TJX all reported increases. Luxury stores like Saks and Nordstrom also saw strong December sales.
Even Sears Holdings eked out a small gain on rising sales at its Kmart chain and offered fourth-quarter outlook that's sharply above Wall Street estimates. Macy's, Kohl's and Limited Brands were among retailers raising profit outlooks.
Ken Perkins, president of RetailMetrics, which tracks earnings for 122 U.S. retailers, expects the retail industry to post at least a 30 percent increase in fourth-quarter profits. A year ago, 37 out of the 122 stores lost money in the fourth quarter, with virtually all the rest seeing profits fall.
Stores cut inventories 20 percent to 30 percent and operating costs fell between 10 percent and 15 percent, driving the improvements, said Gilbert Harrison, chairman of Financo, an investment banking firm specializing in retailing.
The better-than-expected December reading was the strongest since April 2008, which showed a 3.3 percent gain.
But keeping any momentum will be difficult, with no overarching reason to shop or buy now that the holidays have passed.
January sales will be up no more than 1 percent, predicts Michael P. Niemira, ICSC's chief economist. However, he expects growth to improve as the year goes on and annual sales to rise as much as 3.5 percent. That would mark the strongest annual increase since 2006.
The figures are based on sales at stores open at least a year, considered a key indicator of a retailer's health. The index doesn't include Wal-Mart, which no longer releases monthly sales figures. Wal-Mart will release its year-end report when it reports earnings Feb. 18. The company, whose sales were fueled by penny-pinching consumers turning to bargains, has shown some weakness amid deflation and a continued soft job market and tight credit.
"It was a struggle for retailers in 2009. It started out extremely weak and finished on an extremely healthy level," Niemira said.
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