Holiday retail: Sales are not profits

Santa is losing money on every delivery. That makes paying for reindeer feed tough.

Analysts looking at US retail sales for Black Friday say that there has been a slight improvement over last year. But, that may not mean much to retailer bottom lines. According to The New York Times, "The bargains that drove shoppers to stores were so stunning, analysts said that retailers - already suffering from double-digit sales declines the last two months - would probably see their profits erode even further."

Who cares if we lose money on every sale. We can make it up on volume. That has never worked and this year is no exception.

What the analysis does mean is that the retail recovery in the face of a recession is a mirage, a convenient way to make investors in store company stocks feel better. Until fourth quarter earnings reports come out that is.

The fact that Black Friday total sales saw a minor improvement is a sucker play. It may give a slight boost to GDP, but that makes GDP an unreliable indicator of how some American companies are doing.

The economy may look like it is rebounding ever so slightly. But that will not matter much if companies go further into the red. All it means is more job losses down the road as retailers try to improve their bottom lines.

Douglas A. McIntyre is an editor at 247wallst.com.