A fleet of the nation's biggest merchants reported mostly better fourth-quarter profits Tuesday after a holiday season marked by cautiously stocked shelves and well-managed markdowns.
But the rosier results mask a tough reality: To build on their halting improvements, retailers will need shoppers who are willing and able to spend more. That's not happening yet.
"They have a bit of momentum to carry them into 2010 and they have the right formula," said Morningstar retail analyst Kim Picciola. "But they're just waiting on the consumer to come back."
They may have to keep waiting if Tuesday's surprisingly steep drop in consumer confidence figures offers any insight. The measure fell in February its lowest level in 10 months, according to a private research group, largely precipitated by mounting worries about job security.
"The economy is not out of the woods yet," The Home Depot Co. Inc. CEO Frank Blake told investors during a conference call Tuesday to discuss the home improvement retailer's results, which went from a loss last year to a profit of $342 million, or 20 cents per share. "We're not projecting robust growth. Our expectation is that 2010 will be a transitional year."
From Sears to Macy's to Target, profits rebounded in the fourth-quarter after a downright dismal 2008 holiday season.
The increase — more than double the previous year's figures at Sears; a 54 percent boost at Target; and a reversal of last year's loss at Macy's — came from cost cutting and carefully ordered merchandise. That let retailers sell without drastic markdowns that were standard the year before.
But sales were mostly stagnant, ranging from a 1 percent decline in Macy's department store to a 3 percent gain at cheap-chic Target.
Shoppers will stay cautious until the nation's economy and job outlook is rosier, experts said.
Unable to keep waiting out that return, retailers are trying everything they can to make their stores and their products more inviting to customers.
"We're now getting to a point where retailers are going to have to break a stalemate," said Wendy Leibmann, CEO of consulting firm WSL Strategic Retail. "They're going to have to now invest in getting shoppers back into the store and not just invest in cutting their expenses. And if they don't start innovating and being aggressive in their marketing again, shoppers are just going to continue to sit on their hands."
At Target Corp., which earned $936 million, or $1.24 per share, in the quarter, there's a push toward marketing low prices and expanding grocery selections. The company is also rolling the dice on a new store format starting in April that will feature spruced-up home furnishings, larger grocery sections and better video game displays.
"We believe that collectively this set of innovations will be a powerful catalyst for future market share growth," Target chairman, president and CEO Gregg Steinhafel said during a conference call Tuesday to discuss the fourth quarter's results.
At Sears Holdings Corp., which is blanketing the marketplace with its latest e-commerce experiments, Chairman Edward Lampert said he's confident the owner of Sears and Kmart stores will be able to leverage online presence and well-known brands like Kenmore, Craftsman, Diehard and Lands' End.
Last week, Sears said it would begin selling some of its famous brands at other retailers, including some selected Craftsman tools at Ace Hardware locations.
Its profit — its best in three years — was $430 million, or $3.74 per share, although revenue dipped.
"Sears has a long tradition of building lifetime relationships with our customers, and the focus that we have on updating and improving our service businesses continues that tradition," Lampert, who acquired Kmart out of bankruptcy in 2003 and Sears two years later, wrote in a lengthy annual letter to investors.
Meanwhile, Macy's Inc. CEO and Chairman Terry Lundgren said the department store chain plans to capitalize on the success of its holiday shopping season and is carefully planning its 2010 sales and discounts.
Sears shares fell $1.86, or 2 percent, to close Tuesday at $93.80, while Target's stock dropped 58 cents, or 1.2 percent to $50.06.
Macy's climbed 20 cents to $18.67 while Home Depot added 43 cents, or 1.4 percent, to $30.75.
Shares of Barnes & Noble, whose results were short of Wall Street forecast, fell $1.28, or 6 percent, to end at $20.23.