September retail sales came in stronger than expected, raising hopes for the holiday season. But even with the surprising numbers, most merchants still treading carefully around the consumer.
Comparable sales (for stores open at least a year) rose 2.8% among the country's largest retailers, according to a tally by Thomson Reuters, which also found most merchants beat their own estimates. The majority of analysts had forecast sales would grow in the low-to-middle 2% to 3% range; Thomson Reuters had expected 2.1% growth.
Sales were "surprisingly good, better than I expected them to be," said Joel Alden a principal at consultant A.T. Kearney. He noted that September is the first month this year where the sales numbers are not getting the benefit to a weak performance the year before, like the results in 2009 got from the recession year of 2008.
Retailers Still Cautious
Despite the robust numbers, few retailers took the opportunity to raise their forecasts for their coming third-quarter earnings reports, as analysts had expected.
Macy's (M) which reported a solid 4.8% gain -- thanks to its best back-to-school season in years, according to a statement from CEO Terry Lundgren -- didn't budge. J.C. Penney (JCP), which posted a strong 5%, ahead of its own expectations after struggling early this year, only affirmed it will meet it previous forecast of 16 cents to 20 cents per share in earnings for the third quarter. One retailer that did raise its sights was TJX Cos. (TJX), the parent of discounters Marshalls and TJ Maxx; it now projects earnings of 89 cents to 91 cents per share during the third quarter, a 10% to 12% increase over last year period.
Comments from Kohl's (KSS), which saw comparable sales rise 3%, hint at the retailers' worries. The discounter reporter that while its transactions per store were up in the high single-digit percentages, prices and units per transaction dropped by low single-digit percentages. That hints at a consumer who remain cautious about spending, shopping more but buying -- and spending -- less per trip. Target Corp. (TGT), which posted a disappointing 1.3% sales increase, also found smaller average receipts offset rising store traffic.
The fact that sales have been up and down this year and influenced by retailer's promotions can be making retailers more cautious about their guidance, said Kenneth Stumphauzer, retail analyst at Sterne Agee. But the results were pleasing overall, despite some concerns about bad weather and excess inventory going into September, he said.
In fact, sales have been rising against a grim backdrop of weak housing and credit markets and continued high unemployment. Stumphauzer noted consumer confidence is lower than it ever was since the 2002 recession, near the nadir of the 1991 recession.
"It's improved from the bottom, but it's still at absolutely horrific levels," he said. So the fact that merchants are still managing to stimulate shoppers and post rising sales is a positive for the holiday season, he said.
The Wealthy Abide
A tally from the International Council of Shopping Centers noted luxury was the strongest retail segment this month, with a 6.6% increase, another good sign for holiday. Chief Economist Michael Niemira pointed out the top 20% of households by income account for nearly 40% of total holiday spending, so a continued strong performance in that area is encouraging for the economy and the merchants.
But most forecasts are being cautious, despite the surprises in the monthly reports. Many retailers who forecast October sales had muted outlooks, factoring in strong competition and the need to continue promotions to stir up sales. Additionally, analysts note that macroeconomic indicators are persistently down, including housing, employment and household incomes.
"Some of those macroeconomic factors require cautious optimism towards Black Friday and the holiday," said Alden. "I'm seeing a decent holiday going forward, but I don't think we can be overly optimist."
The recession may be over, but those macro factors are still holding consumers back, said Stumphauzer, who's expecting a modestly healthy 2% to 3% sales growth during the holiday season.
"It's not what you'd like to see this far in an economic recovery," he said. "But given the backdrop we've seen in the last few months, it's a positive,"