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Maybe the Grinch didn't steal this Christmas after all.

Though this holiday shopping season ranked as the worst in a decade, sales surged after Christmas, amid deep discounts, reducing the damage. And while some investors fret that those markdowns will destroy profit margins, others are focusing on the retail industry's success in clearing its shelves of unwanted inventory. This season's clearance fever could immunize the sector against a spring swoon, some investors believe.

Instinet's Red Book Average, a broad gauge of

same-store sales, fell just 0.3% from a year earlier in December, Instinet said Wednesday. That's far better than the 1.2% decline that Instinet analyst Catlin Levis expected for the period, which ends Jan. 5. Another measure, the UBSW/BTM same-store sales index, published by UBS Warburg, also indicates that sales are tracking better than previously thought.

"The Christmas week provided the type of sales gain many retailers had been waiting for to bring their December more in line with revenue growth expectations," Levis says.

Move It On Out
Apparel retailers slashing inventory

*Estimate. Source: Lazard Freres

Late-season symbols of strength were popping up everywhere over the past week or so.


(WMT) - Get Walmart Inc. Report

, the nation's largest retailer and a proxy for the state of the retailing sector, said sales in the December period were better than expected. The company had planned for same-store sales growth in the low end of the 4% to 6% range, but now expects the actual figure to be at the upper end of that range.





(AMZN) - Get, Inc. Report

saw strong traffic throughout much of the holiday period, suggesting that online retailers may have reaped some gains at the expense of their brick-and-mortar counterparts.

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The S&P Retail Index was off about 1% at 919.44 in recent trading, while Wal-Mart shares were up 4 cents at $57.59.

The big question surrounding the season is just how deeply discounting will cut into margins -- and therefore fourth-quarter earnings, which most retailers will report next month. But some industry watchers say a more important point is that lower inventories should have retailers ready to recover this spring.

Lazard Freres analyst Todd Slater, for example, upgraded several outfits in the beleaguered apparel sector, which had suffered for much of 2001 from poor fashion and the declining economy. "With inventory levels very lean, markdown exposure should be minimal from here," he says. "While the upside may not be dramatic, the pendulum is clearly swinging in the right direction."

Among the companies he upgraded are




Intimate Brands


, both to buy from hold. (His firm doesn't have a banking relationship with either company.)

Shares in Intimate Brands were up 82 cents, or about 5.5%, at $15.68, while Limited was up recently 78 cents at $15.50.

Overall, Slater expects inventory levels to decline 1.1% at apparel retailers in the fourth quarter, compared with a 3.9% rise in last year's fourth quarter. He expects declines of 0.8% and 0.5% in the first and second quarters of 2002. At the height of the economic boom in 1998 and 1999, inventories rose more than 10% in some quarters, according to Slater's figures.

While no one is denying the holiday shopping season was bleak for most of the nation's merchants, Wall Street has found a silver lining.

"It was as bad as we had anticipated and predicted," says Kurt Barnard, a retail consultant and publisher of

Barnard's Retail Trend Report

. "But a lot of merchandise was moved, and that is good."