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For Retailers, 'Tis the Season for Low Expectations


This year, the stores are under promising with the hope of over delivering.

Last year's holiday season was one of the worst on record for retailers. During the last quarter of 2008, Macy's reported a 59% decrease in profit, Sears' dropped 55%, and Target's earnings fell 41%. Overall, holiday sales declined 3.4% in 2008.

This year, the economy continues to struggle, but retailers are hoping that they're more in sync with consumers and can draw holiday shoppers back into store aisles. They're also hoping to make room for upside by keeping expectations low.

J.C. Penney (JCP), the third-largest US department store, is hoping that its moderately priced inventory will help it pick up some slack this holiday season, especially after posting a 78% decline in net income for the third quarter.

Last holiday season, the retailer posted earnings of $0.94 per share. This year, the company expects earnings to be in the range of $0.70 to $0.85 per share.

The company's CEO is expecting customers to be wearing their frugality on their sleeves and said J.C. Penney's selection of alternatives to high-end brands will draw in more sales, especially in its leading department: women's apparel.

(See also, J.C. Penney CEO Bullish on Recession)

Kohl's (KSS), a J.C. Penney rival, announced a 20% jump in its third-quarter profit, but released a watered-down forecast for the fourth quarter, which it sees as being in the range of $1.14 to $1.24 a share. Analysts are expecting $1.23 a share.

That's more than the $1.10 per share the company earned during last year's fourth quarter but below the $1.31 per share it earned during the 2007 holiday season.

Richard Jaffe, a retail analyst at Stifel, Nicolaus & Co., said in a note that Kohl's may be hoping to "under promise, and over deliver."

Target's (TGT) third-quarter release proved stronger, with an 18% increase in profit -- a welcome sight after last holiday season's 41% drop in quarterly earnings.

However, like Kohl's, Target isn't overly optimistic going into the fourth quarter. In a statement, executives said the company "remains cautious about fourth-quarter performance and is planning conservatively."

For more on Target's third-quarter earnings and expectations, read Target Hits the Bull's-Eye.

Target said it expects fourth-quarter same-store sales to decline, though by low single digits.

Analysts watching for consumer traffic have a close eye on the store's deals and its other approaches to draw in holiday shoppers. So far, Target has been near the top of the crowd. Its Black Friday specials, including some $3 appliances, helped lure in more than four million unique visitors to its website -- a 2% increase over last year, according to comScore.

For more on this season's e-commerce, see Holiday Web Shopping Looks Brighter Than Last Year.
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