Pent-up demand may have saved the top line — and tight inventory controls the bottom line — for retailers reporting crucial December comparable-store sales results on Thursday.

This story first appeared in the January 6, 2010 issue of WWD. Subscribe Today.

Despite snowstorms and more consumers who delayed shopping as they waited for markdowns, most retailers either met or exceeded holiday sales and margin plans, said analysts, who forecast comps would be slightly up or flat compared with the previous year’s disastrous results.

SpendingPulse, an information service provided by MasterCard Advisors that estimates total U.S. retail sales by cash, check or credit card, said jewelry and luxury ended the month strongly, up 6.9 percent and 5.5 percent, respectively. Specialty apparel retail declined 1.8 percent, but improved compared with a 5.7 percent decline in November and an 8.9 percent decrease in December 2008.

Online sales were up 17.7 percent for December over last year, according to MasterCard. Last week, comScore put the increase in online sales for holiday at 4.9 percent, to $27.12 billion.

“Apparel continues to struggle,” said Kamalesh Rao, MasterCard Advisors SpendingPulse director of economic research, adding that consumers still spent more per store visit this holiday than last year.

In the last six months, consumers have started spending more on average, Rao said, noting that, for apparel, this “reversal” began in October.

“The consumer does not seem to be trading down as much anymore,” Rao said. “Consumers are a little more comfortable with discretionary spending. The numbers we are seeing now are sort of a best-case scenario given the weak employment figures.”

Michael Niemira, director of research and chief economist at the International Council of Shopping Centers, said sales after Christmas “were boosted by consumers redeeming their gift cards. Holiday sales were late in coming, but showed healthy gains as the season wrapped up.”

Sales rose 1.5 percent for the week ended Jan. 2, according to the ICSC, December retail sales are expected to finish up 2.5 percent. The trade group previously forecast a 1 percent to 2 percent rise.

In the midst of the economic meltdown, retail sales sank 5.6 percent during holiday 2008 as stores cut prices by as much as 70 percent or more, making it the worst holiday season in more than 40 years, the ICSC said. Unlike the previous year, retailers in 2009 were able to manage their inventories and limit their markdown exposure.

“While we don’t think there will [be] an overwhelming number of upside revenue surprises, we expect numerous upward earnings revisions driven by solid margins and enough of a sales recovery in the final two weeks of the month,” said Lazard Capital Markets retail analyst Todd Slater.

Notwithstanding easy comparisons versus December 2008 and the third quarter, Slater said he remained “concerned about the fragility of the consumer amid rising costs and decreasing disposable incomes.”

“Unemployment remains high, consumer confidence is low, while prices for consumables, energy and consumer credit will all edge higher,” he said.

Breen Murray, Carret & Co. specialty retail analyst Eric Beder said “rising inventories and expectations for 2010” are other concerns.

“Blizzards, lower inventories, customers waiting to the bitter end for the best deals — holiday 2009 was a study in contrasts,” he said. “At the end of the day, we believe overall results will be only slightly better than last year for retailers. Given how terrible last year was, the tepid top-line results should be viewed as another round of mediocrity in what has been a year of mediocre results.”

Sticking with forecasts of a low-single-digit decline in holiday comps, with the week after Christmas helping to “save the overall holiday,” FBR Capital Markets retail analyst Adrienne Tennant said, “Planned promotions, lean inventories and cooler weather all contributed to what we believe will be stronger-than-expected December comps.”

Tight inventories helped retailers stay on track, avoiding what Tennant called “last year’s fire-sale prices,” but she said that post-Christmas, stores had returned to signage with discounts ranging from 50 percent to as much as 75 percent off. Nonetheless, the breadth of markdowns was “considerably lighter” than in 2008, she added.

Cold weather may have also been a mixed blessing for retailers, as many shoppers waited for unfavorable weather conditions to pass. Others, however, were compelled to buy bigger-ticket winter apparel. This could initiate a “revival” of the “replenishment cycle for ‘need-based’ shopping” as “cold weather is here to stay,” Tennant said.

Wedbush Securities analyst Betty Chen said a “higher portion of holiday sales likely shifted to the online channel” given the difficult weather.” Many consumers also “capitalized on post-Christmas discounts” that have become “increasingly important,” she said.

Craig Johnson, president of Customer Growth Partners, said the gap between lackluster economic data and better-than-expected holiday sales was predictable.

“This isn’t rocket science,” he said. “We had two or three years of pent-up demand, 18 months of an almost too healthy 4 to 5 percent savings rate, followed by an initial turnaround in the economy. We may have 17 percent underemployment, but for the 83 percent of consumers with full-time jobs, all it took was the spark of some Christmas season advertising to ignite this pent-up demand, and on-trend merchandise flew off the shelves — if it was priced right.”

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