October Sales: Ignore at Your Own Peril

NEW YORK (TheStreet) -- October, a retail month once all-but ignored, is becoming a bigger barometer for the holiday season.

As shoppers start their search for discounts earlier this year, October is no longer the lull-and-clearance month it once was, back when retailers merely used it to prepare for the carnage known as Black Friday.

Good thing, then, that same-store sales for the month, which are due out on Thursday, are generally expected to beat expectations.

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In the last week of the month, chain store sales inched up 0.1%, according to the International Council of Shopping Centers and Goldman Sachs. On a year-over-year basis, sales climbed 1.9%, a slower pace than in the weeks prior.

"Sales momentum slowed at the end of the fiscal month of October, as weather turned warmer and wetter," Michael P. Niemira, ICSC chief economist, said in a statement.

ICSC expects October same-store sales to be flat, with the potential for 1% growth. Meanwhile, UBS analyst Roxanne Meyer says we will even see many companies boost their third-quarter guidance.

Teen retailer American Eagle Outfitters (AEO) -- with improving product, a lowering of its promotional levels and easier comparisons -- could well be one of those positive surprises.

Meanwhile, The Gap (GPS) is also expected to provide some positive third-quarter commentary, as comparable sales should be led up by the Old Navy chain.

While skeptics worry that Aeropostale's (ARO) luck will run out as comparisons get harder next year and American Eagle improves, that doesn't seem to be the case for October.

And, once again, it appears as if the winners in the sector will be off-pricers TJX (TJX) and Ross Stores (ROST), both of which have been able to pick up fresher merchandise due to consolidation in the marketplace.

In the department store sector, Kohl's (KSS) continues to see positive results from its compelling private-label brands and wallet-friendly prices. Wall Street predicts a 4.4% jump during the month.

Nordstrom is up against its easiest comparisons of the third-quarter in October, and analysts believe same-store sales will rise 2%, lifted by Rack stores.

Of course, good news on Thursday won't necessarily result in a stock rally; much of this optimism has already been factored in, as most retailers outperformed the markets in August, September and October, Stifel Nicolaus analyst Richard Jaffe wrote in a note. The S&P Retail Index is up 10.3% quarter-to-date, while the S&P 500 advanced just 8%.

Thus, the real concern is no longer with the fourth quarter. Instead, experts are worried aboit what will happen once the holidays have passed, and consumers no longer have a reason to shop. Retailers will also begin to reach the anniversary of cost cuts and tighter inventory control in 2010, which means the only way left for them to grow profits will be the hard way: through sales gains.

Heading into November and December many retailers will also begin trading some recent monthly sales gains for better margins, J.P. Morgan analyst Brian Tunick wrote in a note. "The question will be how investors will treat those companies that might miss their 'two-year' comparative stack, in exchange for more regular-price selling."

-- Reported by Jeanine Poggi in New York

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