Retail's Oct. Results Best In 18 Months, Luxury Chains Shine

• Ed Carson And Marilyn Much
• On 6:47 pm EST, Thursday November 5, 2009

Retailers enjoyed their best sales in more than a year in October, topping views Thursday. But teen apparel chains struggled amid a post-back-to-school spending lull and the negative effects of the high youth jobless rate.

Overall same-store sales rose 2.2% vs. a year earlier, the best since April 2008, says Ken Perkins, president of Retail Metrics. The second straight monthly gain topped forecasts for a 2% gain. A hefty 57% beat views.

"We're continuing the upward trend we've seen since the low point 14 July," said Perkins.

Stores benefited from the easiest year-over-year comparisons in a decade. October 2008 comps dived 3.5%.

Cool weather in early October helped drive fall clearance sales. Early holiday bargains and an improving economy also helped, fueling demand for seasonal clothes.

The rise in clothing sales was a good sign, says Michael Niemira, chief economist at the International Council of Shopping Centers.

"It suggested with the right incentives, the consumer is willing and seems to be able to spend," he said.

He figures apparel chains' October comps rose 1%, their second straight monthly gain.

An improving economy loosened shoppers' wallets, says Niemira.

"A lot of data points on the macro front were strong, which helped in terms of the consumer's willingness to spend," said Perkins. "Things are setting up for holiday sales to be up 1% to 2%.

After months of cheap chic, luxury is making a comeback. Nordstrom (NYSE:JWN - News) and Saks (NYSE:SKS - News) beat estimates. Shares of both climbed.

The market bounce off March lows has been a plus for high earners. Niemira figures luxury chains saw a 1.8% rise in October comps, their first gain since May 2008.

"We may not be out of the woods yet in terms of the return of the luxury consumer," he said. "But we're certainly on the path to recovery."

But teen apparel frayed. The sector's comps fell a surprising 4.7%, says Perkins. Buckle (NYSE:BKE - News) and American Eagle (NYSE:AEO - News) missed forecasts.

Aeropostale (NYSE:ARO - News), a 2009 standout touting value-priced teen fashion, reported a 3% same-store sales gain -- far below estimates for 14%. Aeropostale shares dived 12%.

"We consider the teen/child sector as a good proxy of discretionary spending," said Jharonne Martis, director of consumer research at Thomson Reuters. "When consumers do spend they go to off-price retailers where they can buy designer label clothing at a discounted price."

Off-price clothier Ross Stores' (NasdaqGS:ROST - News) 9% same-store sales gain cleared estimates. Warehouse club giant Costco's (NasdaqGS:COST - News) 5% rise was a little above views. Target's (NYSE:TGT - News) flattish comps were in line with forecasts.

Some value chains struggled. Kohl's (NYSE:KSS - News), which surprised markets in September with positive comps, couldn't meet higher expectations, posting a 1.4% October gain vs. estimates for 4.9%. J.C. Penney's (NYSE:JCP - News) sales fell more than expected. Shares of both department store chains retreated.

Earnings Look Strong

Kohl's, Ross, J.C. Penney, Gap (NYSE:GPS - News) and even Aeropostale raised profit guidance for the just-ended July-October quarter. Store operators are keeping a tight lid on inventory, limiting heavy markdowns.

Analysts estimate that retailers' earnings for the just-ended Q3 likely rose 1% vs. a year ago, says Perkins. It would be the first gain after nine straight quarters of declines. They expect Q4 earnings to jump 25% vs. a year ago.

Comparisons get even easier heading into the critical holiday season. Niemira expects November comps to rise 5% to 8%. Last year they sank 7.7%.

He conservatively estimates a 1% rise in Christmas same-store sales vs. last year's woeful 5.8% decline.

An improving economy bodes well for retail. GDP grew at a 3.5% annual rate in Q3, the first gain in five quarters.

But hiring tends to lag economic recovery. New jobless claims fell 20,000 last week to 512,000, the lowest since the first week of January, the Labor Department said. But that's still far too high to signal actual job growth. Job losses and fears have been a major head wind for consumer spending.

Economists expect Friday's jobs report to show October payrolls fell by 175,000 while unemployment edged up to 9.9%.

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