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Retailers Expected to Post Stronger November Sales

Monday, 10 Dec 2007 | 12:45 PM ET

Despite evidence that shoppers are cutting back this holiday season, retailers are expected to report strong improvement in November sales from the weak results earlier in the fall.

The better same-store sales numbers, due out Thursday, are likely to come from most retail sectors, including the big discount chains like Wal-Mart Storesand Targetandhigh-end stores like Saks. The improvement is a bit of a surprise after widespread reports that shoppers were focused on bargain-hunting and were holding off purchases until items went on sale.

Kathy Willens

"Sales are expected to be a bit better than over the last two months, and about in line with the fiscal year-to-date trends that we’ve seen," said Michael Niemira, chief economist and director of research for the International Council of Shopping Centers.

Thomson Financial’s same-store sales index is calling for a 3.3% gain in November. If this forecast proves accurate, it would beat the 2.5% increase posted last year at this time. Many analysts expect retailers will be able to outpace this forecast.

Several surveys, including one from ICSC, have shown that consumers flocked to stores on Black Friday hunting for bargains, but are currently in a post-Thanksgiving lull.

Many retail industry watchers are seeing this as a sign that shoppers are more cautious about spending. Still, there are expectations that shopping will pick-up as we reach the middle of the month.

Heading into the holiday, there had been an expectation that sales would be soft. The National Retail Federation was estimating holiday sales would be up a modest 4% to $474.5 billion. That falls short of the 10-year average of 4.8%. If the forecast proves true, it will be the weakest holiday since 2002, when sales rose a meager 1.3%.

Waiting for Last-Minute Deals

According to ICSC, about 22% of U.S. households have completed more than half of their holiday shopping. That's down from last year at this time, when 25% of households had reported their shopping was more than halfway completed. In 2005, 32% of households were nearly done with their shopping by this time.

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A look at this holiday season's retail winners and losers, with Richard Jaffe, of Stifel Nicolaus; Gian Fulgoni, of ComScore; and CNBC's Margaret Brennan

Many consumers are likely waiting for retailers to slash prices further. This was the finding in a national survey released earlier this week by consumer-behavior marketing firm America’s Research Group.

Britt Beemer, the group's founder and chairman, said consumers are very bargain hungry this year. Although 60 percent of consumers said they had continued to shop for gifts since the Thanksgiving weekend, some 54 percent of those who hadn’t said they were waiting for bigger deals just before Christmas.

Some 23 percent were looking to spend less this year, which is an all-time high since he began conducting his holiday survey.

Who's Winning

Consumers also are favoring discounters such as warehouse chain Sam’s Club. The Wal-Mart-owned retailer outranked Toys R US when respondents to Beemer’s survey asked where consumers were doing their holiday shopping. That’s a new development, according to Beemer.

One factor that could be hurting toy retailers is the recalls of Chinese-made toys this year. According to Beemer, some of the beneficiaries have been bike manufacturers. Bicycles, dolls and motorized cars are all toys that have been selling well, he said.

Another bright spot has been online. According to Comscore, it appears sales over the Internet are up 18% from a year ago. That’s a bit weaker than last year when online sales surged 24%, Comscore said.

"My conclusion is there is a bit more concern on the part of consumers in their spending behavior this season," said Gian Fuglioni, Comscore Chairman.

Still, investors will be looking for some hard numbers to confirm whether consumers are really behaving as they say they are.

Citigroup analyst Debra Weinswig expects the retailers she covers, which include discounters Wal-Mart and Target; department stores such as Macy’sand J.C. Penney’s; and warehouse stores Costcoand BJ’s Wholesale, as a group, to deliver “on- to above-plan” same-store sales in November. Weinswig’s expectations are driven by the arrival of chillier weather and a favorable shift in the calendar, which will help flatter sales this month.

As the reports come out, Weinswig will be looking to determine how strong sales were on Black Friday and Cyber Monday; the magnitude of the benefit from the calendar shift, and what inventory levels were at the end of the month.

Pent-Up Demand

"On Black Friday, consumer flocked to stores early in search of doorbusters, but kept their purchases selective," Weinswig said. "Based on their early read, we expect this Holiday season to be challenging and highly promotional."

Meanwhile, Citigroup analyst Kimberly Greenberger expects specialty retailers such as Ann Taylor,Children’s Place, J. Crew andUrban Outfittersto benefit from pent-up demand for apparel created by weak sales in September and October.

This is despite Greenberger’s expectation that traffic at the mall is down about 2% from last November. Still, this is an improvement over November, when traffic fell 5%.

As for the holiday, Greenberger expects a "solid" season.

"We believe consumers remain resilient when there is a purpose at hand (as shown by strong sales during the Easter and Back-to-School periods), likely benefiting traffic and sales in December," she said.

Another factor that could help November sales, although on a more limited basis, is the timing of Hanukkah, which comes 11 days earlier than last year.

According to Thomson Financial, Saks, Target,Bon-Ton, Zumiez, and Macy’sare expected to post the largest percentage gains in their November sales. Meanwhile, Sharper Image, Chico’s FAS, Hot Topic,Wet Sealand SteinMart, will see the steepest declines in their results.

But with all eyes on the holiday, retailer’s comments on how December sales are shaping up may be more important than the actual same-store sales reports for November, according to Niemira.

"That part of the equation is probably far more important," he said.

Christina Cheddar Berk is a News Editor at CNBC.com. She can be reached at christina.cheddar-berk@nbcuni.com.

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