Retail Picture Still Developing

Some see a post-holiday surge thanks to promotions and gift cards.
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Updated from 1:52 p.m. EST

With Christmas over, retailers focused Monday on a post-holiday shopping surge juiced by heavy promotions and gift-card-driven traffic.

"Retailers threw the rulebook out the window and decided that they were going to get back in the game and get super aggressive," said C. Brit Beemer, chairman of America's Research Group. "I would venture to say that traffic levels in the stores on Sunday after Christmas was probably the best I've seen in five years. Consumers started shopping early and they were there all day."

Holiday sales increased 8.1% over last year, according to an early projection from SpendingPulse, a retail sales service from MasterCard Advisors.

The National Retail Federation, meanwhile, is expecting a 4.5% gain in sales for the season, but its data account for just a portion of online sales and can record gift-card sales only after the card is redeemed. The MasterCard Advisors data reflect both online sales and sales of gift cards at the time the cards are purchased; this explains some of the disparity between the two sources.

"We know from bits and pieces of information that the last week before Christmas saw a nice pickup in sales that helped propel the season back toward where we expected it to be," said Mike Niemera, chief economist and director of research with the International Council of Shopping Centers. "It was short of that prior to this last week, but the momentum was certainly picking up."

Still, Niemera cautioned investors against coming to any strong conclusions about holiday results at this point.

"Everything is still pretty sketchy," Niemera said. "Holiday spending was probably pretty good, but holiday sales were uneven at best. Online sales, and some other segments, appear to have been very strong, but still other places showed disappointments. So, it'll probably be a mixed bag overall.

"The day after Christmas appears to have been strong, and this next week will tell us how meaningful this gift-card factor will really be," he added. "Once we have a handle on post-holiday sales, that will be the icing on the cake that will give us the true picture of what went on."

SpendingPulse said sales growth was led by apparel retailers, up 9.8% over last year, followed by home furnishings, up 9.7%, and electronics, up 4.2%.

Among retail stocks Monday,

Target

(TGT) - Get Report

and

Sears

(S) - Get Report

were big winners, both closing with over 1% gains. After the bell, Target said it was on track to hit its same-store sales target of up 3% to 5% in December over last year.

The world's largest retailer,

Wal-Mart

(WMT) - Get Report

, said Christmas was roughly as it had expected. Its December same-store sales are still expected to climb by a rate in the middle of its 1% to 3% year-over-year range.

"We saw strength in both food and general merchandise sales for the week," Wal-Mart said in a statement on its Web site. "Sales of gift cards are up significantly over last year. The West was the strongest region, and customer traffic drove the comp sales this week."

Its results were helped by strong sales the day after Christmas, which Wal-Mart said came in "over our plan."

Shares of Wal-Mart closed up 29 cents, or 0.5%, to $52.84.

Wal-Mart's beleaguered competitor,

Toys R Us

(TOY)

, said it is converting its toy store in Manhattan's Union Square into a Babies R Us store, after the

New York Post

reported that hundreds of workers at about 15 outlets received pink slips yesterday. The company said its Times Square flagship store will remain a toy store.

"We've been looking for some time for the right home for Babies R Us in Manhattan," Chairman and Chief Executive John Eyler said in a statement. "With the success of Toys R Us Times Square, we felt our shareholders and customers would be best served if we converted the Union Square location to a Babies R Us store."

Shares of Toys R Us closed down 5 cents, or 0.2%, to $19.94.

Sharper Image

(SHRP)

was the big loser for the session after slashing its fourth-quarter earnings guidance because of weaker-than-expected overall holiday sales. The gadget chain expects to earn 94 cents to 99 cents a share in the period, well below the $1.31 a share consensus compiled by First Call. The company sees fourth-quarter sales up 7% to 9% from a year ago, compared with a previous estimate for a 15% to 18% gain.

Its stock dropped $4.17, or 18%, to $18.97. Other losers in retailing included

Aeropostale

(ARO)

, down 60 cents, or 2%, to $29.20;

Neiman Marcus

(NMG)

, down $1.26, 1.7%, to $71.29; and

Joseph A. Banks Clothiers

(JOSB)

, down 31 cents, or 1.1%, to $28.49.

On a positive note,

Amazon.com

(AMZN) - Get Report

said 2004 was its best holiday performance in its history, with 2.8 million units ordered on its peak day. The Internet retailer said electronic items outsold books this season, led by DVDs and video games.

Shares of Amazon closed up $3.32 cents, or 8.5%, to $42.25.

ComScore Networks, a market research firm that tracks online sales, said holiday Internet sales are expected to top earlier projections of $15.5 billion this year, up 28% from the $12.3 billion recorded for the same period last year.

Elsewhere,

Coach

(COH)

said it expects holiday sales to jump 25% over last year's results, with a same-store sales increase in December in the low teens. The luxury handbag seller is riding a wave of strength in high-end spending this season, as lower-income consumers remain crimped by high gas prices and a lackluster job market.

Shares of Coach closed up 42 cents, or 0.8%, to $55.73.

The S&P Retail Index ended the day with a small loss, despite all the high hopes for a post-Christmas shopping rush. Shoppers are expected to pounce on post-Christmas discounts and exceed the spending limits on their gift cards.

"A year ago we had a very strong after-Christmas stretch as well, so I wouldn't say that this in itself could make the season, but they're off to a good start," Beemer said. "I think this will probably be a stronger week than it was a year ago, but I don't think the season is going to end up being as productive as people originally thought."