Heavy discounts fuel solid retail gains in October

Many retailers reported solid revenue gains in October, but it took heavy discounting on coats and other cold-weather items to get shoppers to spend amid unusually warm temperatures.

The discounting will have to continue, analysts expect, to pull in shoppers for the holiday shopping season as they grapple with job worries.

As retailers report their figures on Thursday, the bright spots were Costco Wholesale Corp. and Limited Brands Inc., both of which reported bigger increases than Wall Street analysts expected. Macy's Inc., helped by its focus on tailoring its merchandise to local markets, also had a decent performance, outshining rivals such as J.C. Penney Co. and Kohl's Corp., both of which suffered sales declines. Macy's also raised its earnings outlook. Target Corp. posted a small gain that's slightly above Wall Street estimates.

Luxury chains like Saks Inc. continued to do well as wealthy shoppers are back to spending, albeit cautiously.

"It was a promotionally driven month," said Jharonne Martis, director of consumer research at Thomson Reuters. "Warm weather hurt sales of fall merchandise. We expect discounting is going to be necessary to drive holiday sales."

The figures are based on revenue at stores open at least a year. That's considered a key indicator of a retailer's health because it measures growth at existing locations and excludes new or closed stores.

October is typically a slow month because it's between the back-to-school season and the start of the holiday shopping period. But shoppers appeared to take more of a breather than usual as they grappled with continued economic uncertainty.

Warm weather in many parts of the country also dampened their appetite for fall clothing. That made stores push discounts even more to entice consumers, who are buying even closer to when they need the items in the wake of the Great Recession.

To lure shoppers to buy for the holiday season, many more stores than last year started pushing discounts on gifts even before Halloween.

Americans are also being bombarded with holiday ads on TV. Best Buy Co., for example, started its holiday TV ad campaign Monday; last year, it began Nov. 11. That's because the fight for consumers' wallets is expected to remain intense as shoppers are faced with an unemployment rate that's still stuck at close to 10 percent.

A report Thursday by the Labor Department underscored the job market's weakness. It showed the number of people seeking jobless benefits jumped sharply last week, after two straight weeks of declines. Initial claims for unemployment aid rose by 20,000 to a seasonally adjusted 457,000 for the week ending Oct. 30. Wall Street analysts polled by Thomson Reuters had expected a smaller rise.

Against this background, warehouse clubs and discounters are holding up better than mid-tier stores. Costco said Thursday that its revenue at stores open at least a year climbed 6 percent in October as international results improved in part because of the weaker dollar.

Analysts polled by Thomson Reuters expected a smaller 4.6 percent increase.

Target posted a 1.7 percent gain in October, slightly better than the 1.5 percent estimate from analysts. CEO Gregg Steinhafel said in a statement the results were at the low end of the company's expectations because of softness in the first half of the month.

Steinhafel noted traffic is healthy in stores, and the company is seeing essential items selling better than discretionary items.

Limited, the operator of Victoria's Secret, Bath and Body Works and other businesses, reported a 9 percent gain, well above the 6.1 percent forecast. Based on stronger-than-expected results, the company raised its third-quarter earnings forecast.

Department stores had a mixed performance. Macy's posted a 2.5 percent increase, though it said that sales in the beginning of the month were weak because of the unusually warm weather. Analysts had expected a 1.6 percent gain. Terry Lundgren, Macy's chairman, president and CEO said in a release that its new holiday gift shops are getting a good response from customers. J.C. Penney and Kohl's both posted declines.

Saks enjoyed a 8.1 percent gain in revenue at stores opened at least a year, much better than the expected 2 percent increase.