Retailers' September Sales Strong, Raising Holiday Hopes

Back-to-school buying finally arrived, aided by plenty of promotions, with September same-store sales coming in better than expected and raising hopes for the holidays.

Teen retailers, most vulnerable to the fall season, are largely surpassing expectations. But the strength is pretty much across the board, suggesting that some pent up buying demand is being released.

A number of the early reporters are raising third-quarter guidance on the heels of their solid showing, including surfwear-oriented Zumiez Inc. (ZUMZ) and women's apparel retailer Cato Corp. (CATO).

Zumiez, whose same-store sales grew 17% when 12.4% was expected, is part of a teen retail group that includes Hot Topic (HOTT), which posted a 2.6% drop, when a 3.5% decline was projected; and Wet Seal, whose sales declined 0.7% when analysts were expecting a 2.3% drop.

Among regional department stores, Stage Stores Inc. (SSI) saw its September same-store sales rise 1.8%, when 1.5% was expected.

Limited Brands Inc. (LTD), which counts adults and teens among its shoppers, smashed through estimates, posting a 12% rise in sales when 4.1% was expected. The company's Victoria's Secret unit led the upsurge, posting 13% growth, followed closely by Bath & Body Works at 11%.

The 28 retailers tracked by Thomson Reuters are expected to show a 2.1% rise for September at stores open more than a year. Wal-Mart Stores Inc. (WMT) is not included in the group.

Retailers as a group are up against the first positive comparable store sales number in a year, when September 2009 showed a 0.6% advance.

While the year-ago gain was small, there is still significance in beating a positive number because it can supply a psychological boost amid what is still a lot of downbeat sentiment, said Mike Berry, director of industry research for the SpendingPulse unit of MasterCard Inc. (MA). "Anything that can perhaps be viewed as positive news can perhaps make a difference."

Still, "We're seeing a continuation of consumers buying close to their needs, in this case back to school," Berry said.

And there was no change on the promotional front, with some stores marking down already discounted merchandise toward the end of the month.

"Consumers are remaining highly value-centric and purchasing largely only with coupon in hand or because of special offers," said Thomas Filandro, retail analyst at Susquehanna Financial Group.

Major chains have yet to report, but department store executives telegraphed good things at conferences during September.

"Back-to-school was very good," said Terry Lundgren, chief executive of Macy's Inc. (M) at a Goldman Sachs conference on Sept. 14.

Even later in the month, on Sept. 28, J.C. Penney Co.'s (JCP) Myron Ullman said the company exceeded internal expectations for back-to-school sales.

And, "Obviously, back-to-school is equivalent to holiday for the 'young businesses,' young men's, juniors and the kids businesses," Ullman said.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; [e-mail]