By MERCEDES CARDONA, Daily Finance

Retailers ended a difficult fiscal year with slightly better than expected sales in January, which led some companies to boost their guidance for their upcoming year-end earnings reports.

According to a tally of major retailers by Thomson Reuters, comparable sales at stores open at least a year rose 3.3%. Gainers were led by apparel stores, which were up 7.4% on a same store basis; discounters also did better than average, up 4.5%. But even the troubled department store sector rose 2.5%, including the battered luxury retailers.

“Despite lean clearance inventories and some adverse weather that held back sales in January, industry sales posted an impressive gain,” said Michael P. Niemira, chief economist of the International Council of Shopping Centers. He singled out apparel chains, which had their best showing since March 2007.

Most merchants reported increases in January and during the quarter ending Jan. 31, although in many cases, it wasn’t enough to turn around sales for the year. Retailers make their year’s profits during the fiscal fourth quarter, which most companies close at the end of January, to include the post-holiday clearance sales. But most retailers reported that their inventories were down significantly this January, along with discounting. With fewer markdowns, even modest sales growth translates quickly into increased profits.

J.C. Penney Co. (JCP) blamed lower January sales on a shortage of clearance merchandise, and noted that sales of regular and normal promotional-priced items were up by high single-digit percentages. The department store chain’s same-store sales were down 4.8% in January, 3.6% for the quarter, and 5% for the year.

Meanwhile, rival Kohl’s Corp. (KSS) reported its same-store sales were up 6.5% in January, 4.5% for the quarter and 0.4% for 2009, which led the company to raise its earnings guidance. Kohl’s now expects to report earnings of $1.36 to $1.37 per share for the fourth quarter, up from its previous forecast of $1.28 to $1.30.

Signs of a Rebound for Some Big Name Stores

The department store segment is looking up, after several years of suffering. Macy’s (M), also raised its guidance after posting better than expected sales. The parent of Macy’s and Bloomingdale’s reported same-store sales rose 3.4% in January and fell 0.8% for the fourth quarter, better than the drop of 1% to 2% it had expected. That led the company to raise its earnings guidance to $1.35 to $1.37 per share for the fourth quarter, up from its previously forecast range of $1.14 to $1.18, and raised its expectation for the fiscal year to $1.36 to $1.38, instead of $1.15 to $1.19.

In the luxury segment, Saks Inc., (SKS) another retailer that had taken a beating in the recession, also showed signs of a turnaround. It reported a 7% increase in same-store sales in January, though it was down 4.8% for the quarter and 14.7% for the year. Rival Nordstrom (JWN) had a 14% increase in same-store sales in January, and its full-price stores showed renewed strength. While its Rack discount stores had been driving sales growth during the recession, they posted a 5.3% same-store growth in January, compared to 8.9% for the full-line Nordstrom stores.

Both Nordstrom and Saks had fought against the drop in luxury sales by pushing down some of the prices for designer apparel, but Nordstrom had been more aggressive than Saks in stocking more moderate items, and had seen better sales over the past year. The luxury market appears to be perking up this year, thanks to the improvement on Wall Street — as witnessed by better than expected results at Tiffany & Co. (TIF), Burberry Group Plc. (BURBY) and Coach (COH) — which bodes well for the high-end department stores.

Discounters Lost Some Yardage in Super Bowl Shift

But consumers remain cautious discount shoppers, as seen in the results for warehouse clubs and discounters. Both Costco Wholesale Corp. (COST) and rival BJ’s Wholesale Club (BJ) posted gains thanks to rising gas prices; that helped them overcome the shift of the Super Bowl to February, which cost them in sales of food and TV’s. Costco’s comparable sales were up 8% for the month, while BJ’s was up 8.4%; Costco estimated the Super Bowl move cost it between 0.5 and 1 percentage point in sales gains, while BJ’s put the drag at 2 percentage points. On the plus side, the warehouse clubs are seeing less deflation in food prices, which has been a continuing problem over the last year; Costco’s management estimated that price deflation has shrunk to less than 1% in some food categories.

Target Corp. (TGT) also said its electronics department suffered from this year’s Super Bowl shift, but noted that food sales remain strong. The company said it expects same-store sales in February to be flat or up slightly. Total January same-store sales were up 0.5%, which the company said was due to lower clearance sales than last year, and sales for the quarter were up 0.6% but where down 2.9% for the year. CEO Gregg Steinhafel said in a statement that the company is bound to improve in 2010, since it’s showing higher comparable sales in apparel and home — two segments where Target has set itself apart from other discounters.

Retailers will have to continue to focus on wringing profits from modest sales, because consumers remain very tight with their shopping budgets. According to a poll by consulting firm Retail Forward, the number of consumers who say they feel worse off about their household income now as compared with a year ago has risen: 32% said so in January 2010, compared to 27% in January 2009. Likewise, fewer feel they’re better off (25% in 2010 versus 30% in 2009).

“The modest pickup in retail spending is persisting despite challenges ranging from income constraints to bad weather,” said Retail Forward’s senior economist, Frank Badillo. “The recovery should continue on an uneven path as shoppers slowly resume spending that was postponed or reduced during the recession as a precaution.”

But the survey also found households felt more secure in the value of their homes and investments, more had a handle on credit card and mortgage payments, and job security was edging upward. All these bode well for retail’s recovery later in the year, although Valentine’s Day, the next big shopping holiday, appears poised to disappoint. The ICSC’s Niemira is forecasting February sales will be up a modest 2% above last year’s.

Specialty Retailers See Quarterly Rises

In fact, Limited Brands (LTD) expects flat sales in February, despite promotional activity at both its Victoria’s Secret and Bath & Body Works chains. Limited’s same-store sales were up 6% in January, thanks to a 17% increase at Victoria’s Secret from shifting its semi-annual sale to January; that offset an 8% drop at Bath & Body Works, which cut back its semi-annual sale by eight days to match its lower inventories. Company same-store sales were up 1% for the quarter, but down 4% for the year.

Other specialty apparel retailers also saw healthy increases. Gap Inc. (GPS) which showed a 5% increase in same-store sales in January, boasted it posted gains at all its chains for the third month in a row. Old Navy had an increase of 10%, Gap was up 2% at Gap and Banana Republic rose 4%. Total same-store sales were up 2% for the quarter, but are still down 3% for the year.

Aeropostale (ARO), which posted a same-store sales increase of 11% for the month, 6% for the quarter and 8% for the year, upped its earnings guidance to reflect the better sales. It now expects fourth-quarter earnings of $1.41 to $1.42, up from $1.33 to $1.34 per share, a 40% to 41% increase over last year’s earnings. That also led to a new full-year forecast of $1 per share, up from its previous guidance of 90 to 92 cents per share.

Even Abercrombie & Fitch (ANF), whose sales had taken a beating this past year, posted an 8% increase in same-store sales in January, led by a 12% increase at its flagship brand. Abercrombie, which had been punished over the last year for moving too slowly to lower prices, was helped by redemptions of gift cards it gave away as part of a holiday promotion. However, same-store sales were still down 13% for the quarter and 23% for the year.

Compared to January 2009, It’s Easy To Look Good

So the rising tide does appear to be lifting all boats — slowly. Some of the improvement in January is no doubt a result of cycling through the anniversary of devastating post-holiday clearances in 2009 that followed an equally damaging round of holiday markdowns among merchants caught overstocked in a recession. Niemira noted that sales were down 4.8% in January 2009, making this an easy comparison.

A fuller picture will emerge when the Commerce Department releases full January retail sales statistics Feb. 11, which will include auto and gas sales, restaurant receipts and sales at Wal-Mart (WMT), which does not report monthly figures.

by Luke Mullins

Is 2010 the year to buy a house? It certainly looks that way: After a steep run-up in prices during the first half of the decade, home values have plummeted back to 2003 levels. Fixed mortgage rates are sitting near record lows. And the foreclosure epidemic–while painful for many home owners–has created some wonderful opportunities for bargain hunters. If that’s not enough, Uncle Sam is handing out thousands of dollars in tax credits to nearly all first-time buyers and the bulk of existing home owners who close a purchase by June.

But while the 2010 outlook appears inviting, there’s one key catch. “You need to have a stable job,” says Mark Zandi, the chief economist of Moody’s Economy.com. The economy is showing signs of life, but the unemployment rate is already at 10 percent and expected to go higher. And while those mortgage rates are attractive, buying a house makes sense only if you can bank on your income stream. So before you consider purchasing a home, take a hard look at your job, your company, and your industry.

That said, here are 10 things to know about real estate in 2010:

1. Prices to bottom: After more than three years of falling, real estate values have shown signs of stabilization in recent months. At the national level, home prices slid nearly 9 percent between the third quarter of 2008 and the same period this year, according to the S&P/Case-Shiller home price report. That’s a notable improvement from the second quarter’s nearly 15 percent annual drop and the first quarter’s 19 percent decline. This improvement will give way to a bottom in home prices–finally!–in 2010, but not before additional declines, Zandi says. Zandi projects home prices will hit bottom in the third quarter of 2010 after logging a peak-to-trough decline of roughly 37 percent, based on the S&P/Case-Shiller national home price index. “That means we’ve got another roughly 10 percent to go,” Zandi says.

2. Mortgage delinquencies up: Amid falling home prices and a nasty labor market, roughly 1 in every 7 mortgages was either past due or in foreclosure by the end of the third quarter–the highest delinquency rate in the 37-year history of the Mortgage Bankers Association’s National Delinquency Survey. Two factors are expected to drive delinquencies even higher next year. First, nearly 1 in 4 homeowners currently owes more on their mortgage than the property is worth, which increases their odds of default. And secondly, the national unemployment rate–which already stands at 10 percent–will peak at about 10.5 percent in the first quarter of 2010, says Patrick Newport, an economist at IHS Global Insight. Additional job losses mean more borrowers won’t be able to pay their mortgage bills. “The rate is going to stay up there for quite a while because the job market is going to be really weak for a while,” Newport says.

3. Foreclosures move upstream: The number of foreclosure sales will increase to about 1.9 million in 2010, according to Moody’s Economy.com. And while we’ve already seen a growing number of more expensive homes heading into foreclosure, Heather Fernandez, vice president of marketing at the real estate search engine Trulia, expects the trend to pick up steam next year. (Trulia is a U.S. News partner.) “We are poised in 2010 to see a surge of foreclosures from prime borrowers. Hundreds of billions of dollars in option potentially in more desirable neighborhoods,” Fernandez says.

4. Mortgage rates to rise: Anyone who purchased a home in 2009 was presented with some extremely attractive mortgage rates. Rates on 30-year, fixed mortgages fell to an average of 4.88 percent in November, down sharply from 6.09 a year earlier. A key factor behind the plunge was a Federal Reserve program, first announced in November of 2008, that purchased debt and mortgage-backed securities from Fannie Mae and Freddie Mac. But the program is slated to expire at the end of the first quarter, and if private investors don’t step up, fixed mortgage rates could jump. (The Fed, of course, could always decide to extend the program.) The unwinding of this Fed program, the improving economy, and mounting concern over government deficits could push rates on 30-year, fixed mortgages to roughly 5.5 percent by mid-2010 and close to 6 percent by the end of the year, says Mike Larson of Weiss Research. “Almost all signs to me point higher,” Larson says.

5. Buyer’s market remains: With prices still falling, mortgage rates remaining historically attractive, and additional homes hitting the market in the form of foreclosures, the dynamics of the real estate market will continue to favor buyers over sellers in 2010. That means those looking to buy a home next year should not feel pressured to act impulsively. “You don’t need to have a sense of urgency, but understand that as time progresses the balance of power as we get into 2010 is going to slowly but surely shift away from ,” Larson says. “It is not going to be a strong seller’s market, but it will be more evenly distributed as the year goes on.” Data from the real estate firm Zillow show that home buyers are already losing the leverage they once enjoyed. While home buyers landed a median discount of 4.6 percent off listing prices in January, the size of the gap fell to 2.7 percent by October. Expect this gap to close further as 2010 marches on.

6. Modification plan could be modified: While the Obama administration has put nearly 700,000 borrowers into temporarily restructured mortgages, it had found permanent fixes for just 31,382 struggling homeowners through November. What’s more, critics have identified two key shortcomings of the government’s $75 billion antiforeclosure plan. First, the program isn’t much help for borrowers struggling to stay in their homes as the result of a job loss. And the rickety labor market is a key factor behind rising delinquencies. At the same time, the plan does not sufficiently address the issue of negative equity–owing more on your home loan than the property is worth–which also works to increase foreclosures. “The current modification program does not address negative equity and is therefore destined to fail,” Laurie Goodman, a senior managing director at Amherst Securities Group, told a congressional committee in written testimony on December 8. “It must be amended to explicitly address this problem.” Zandi says the government may move next year to overhaul the modification program in two ways: improving troubled borrowers’ negative equity positions by writing down some of the mortgage principal, and helping to turn troubled homeowners into renters.

7. FHA lending standards may increase: While banks have jacked up lending standards in the face of mounting delinquencies, mortgages backed by the Federal Housing Administration–which come with a minimum down payment of just 3.5 percent–have remained accessible to a wide swath of borrowers. The FHA guarantees nearly 30 percent of new-home purchase mortgages today, up sharply from just 3 percent in 2006. But the rapid growth has occurred alongside an increase in mortgage delinquencies. As a result, the FHA’s reserves have dipped below congressionally mandated levels. The development has put pressure on the Obama administration to beef up its requirements for agency-backed home loans. In early December, the Department of Housing and Urban Development announced that it would make several changes to FHA mortgage requirements: raising up-front cash requirements, boosting minimum credit scores, and perhaps charging more for insurance premiums. Additional new restrictions may be in store. Taken together, the developments could work to choke off the supply of mortgage credit to borrowers who can’t get financing elsewhere.

8. Tax credit available through June: On top of lower prices and cheap mortgage rates, Uncle Sam is offering an additional incentive to get buyers into the market next year. In early November, President Obama signed a bill extending and expanding a popular tax perk for home buyers. The legislation gives qualified first-time home buyers a tax credit of up to $8,000 if they close the purchase of a primary residence by the end of June. Meanwhile, qualified current home owners are eligible for a credit of up to $6,500 when they buy their next principal residence. But while the tax perk may make a home purchase more tempting, would-be buyers should make sure they have the job security and financial wherewithal to handle the transaction before going ahead. “Don’t let be the thing that drives you to act,” Larson says.

9. Markets will vary a great deal by region: The performance of the national housing market is much less important that the dynamics of your local market, and sales and pricing trends will vary a great deal from one area to the next in 2010. “There will be geographic pockets where the values will still continue to decline, and there will be geographic pockets where they increase,” said Dale Siegel, a mortgage broker and the author of The New Rules for Mortgages. That means anyone interested in buying real estate next year can’t just read the national headlines. Instead, find a good blog that covers the local housing market and consider speaking with a real estate agent with experience in the area. Check out online listings–pay close attention to pricing and inventory trends. And make sure to head out to open houses to get a firsthand feel for the market.

10. Mobile maps can help: Advances in technology have enabled would-be home buyers to increase the efficiency of their searches. For example, Zillow’s iPhone app allows home buyers to see the estimated values and listed prices of the properties they pass on the street. The app, which is free, has been downloaded more than 830,000 times. Trulia has unveiled a similar product that allows users to find nearby open houses as well. “If you are sitting in a neighborhood having brunch on a Sunday, you can very easily pull up your phone walk into open houses,” says Trulia’s Fernandez.