Consumers are finally spending more, with September posting the first gain in more than a year. The International Council of Shopping Centers and Goldman Sachs (NYSE: GS) found that retail sales inched 0.1% higher last month. It doesn't seem like much, but a gain when you anticipate a fall is good news magnified. But, it came at the expense of great deals and other tools to entice somewhat hesitant customers into stores.

Kohl's (NYSE: KSS) and Limited Brands (NYSE: LTD) reported sales increases in September for stores open more than a year. J.C. Penney (NYSE: JCP), Macy's (NYSE: M) and Target (NYSE: TGT) posted declines, but they were better than expected. Delayed school openings thanks to a late Labor Day helped push to September sales that might have occurred in August otherwise.

Of course, all eyes are on the coming holiday season. The National Retail Federation forecasts U.S. consumer spending of $437.6 billion – up only slightly from $433.7 billion four years ago. So, we still have a lot of ground to make up before we can celebrate a recovery. As long as the situation is staying steady, though, we'll at least have a solid starting point.

Back in November I wrote about JCPenney's (NYSE: JCP) plans to move upscale in a down-market, hoping to attract trade-down consumers who can no longer afford Neiman Marcus or even Macy's (NYSE: M).

In a way it seems counter-intuitive: selling more expensive merchandise in an economy where everyone is looking to go cheaper. But JC Penney's management decided that it would have a better chance at surviving this market by offering affordable luxury, and its new ad campaign reflects that.

The Wall Street Journal reports (subscription required) that the company's spring advertising campaigns "will focus only on its most fashion-forward clothing lines."

How on earth is J.C. Penney Co., Inc. (NYSE: JCP) still in business? I would have thought this company went out to pasture long ago. Seriously, does anyone shop at this store? I think my grandmother shopped there a very long time ago, but I honestly can't remember the last time I set foot in the place. I guess some brands just never die.

OK, I'm being a bit harsh here, but you get my point. The entire retail sector is filled with way too much capacity, and while that capacity lent itself to more choices and lower prices, the flip side is that profit margins were low. What happens when times get tough? Profit margins fall even further and losses become very possible.

We are now in difficult times, and retailers are being destroyed across the board. Even before the credit crisis that began in late September, firms selling consumer goods were already struggling.

Abercrombie & Fitch Co. (NYSE: ANF), the hip clothing store that competes with The Gap, Inc. (NYSE: GPS) and J.C. Penney Company, Inc. (NYSE: JCP), is no different than any other retailer. Christmas is going to hurt... hurt bad. Make no mistake. And as far as earnings reports goes, the pattern is in: report a decline, then issue some nasty guidance.

Abercrombie reported Q3 numbers today, and according to the press release, net sales decreased 8%, and earnings per diluted share declined 44% to $0.72. As Melly Alazraki reported this morning, that $0.72 beat analyst estimates. But the market could care less. As Melly pointed out, the full-year outlook was cut. The stock sold off upon the news. In fact, as I write this, the stock is down nearly 15%. By the way, if by the time this is published the market is up and Abercrombie's shares are trading in the green (big if, granted), don't even think it's a buy. Put that out of your mind. Did you see the same-store sales? They were down 14% for the quarter. That figure is grabbing the attention of investors, I'm sure. When you see a downturn like that, well, you know things aren't going to turn around quickly.

Abercrombie's woes will be with it for a while. Management will find it difficult to strike the right balance between staffing the stores properly and increasing marketing activities. All retailers will be in the same boat. The stock hit a new 52-week low today of $18.83. My guess is that the stock will be as volatile as the market, and that it will trend in a downward direction over the next couple months. Obviously I don't think it's a buy. Broken stock and broken fundamentals aren't a great combo. Abercrombie continues to plan for new store openings in fiscal 2008; perhaps those investments will pay off down the line. For now, the retail sector is doing horribly, competition in the sector is becoming cutthroat as consumer confidence loses value, and I continue to look at only two names -- Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) -- as possible long-term values. Yep, Abercrombie & Fitch isn't so sexy anymore.

Disclosure: I don't own any company mentioned; positions can change at any time.

JC Penney, Inc. (NYSE: JCP) has never missed an opportunity to reinvent itself as often as Madonna. The semi-upscale retailer is trying to find out how to reach increasingly stubborn consumers who are not only holding back funds from discretionary purchases, but are finding non-media ways to spend their time. Think those multi-platform ad dollars going into print and television are reaching younger consumers? Think again.

As a result, JC Penney has targeted young females who may play games using the internet and advertising embedded into games to try and reach that elusive group. Just like when it marketed to college freshmen by sponsoring the Academy Awards, this marketing effort is highly targeted and risky, but it's what is needed. JC Penney recruited EVB to help it with this rather unique marketing campaign.

Although JC Penney has been successful at reinventing itself many times, the retailer wants to move beyond the association with moms and form relationships with the daughters, according to the retailer. Not content with a MySpace page and some display ads on female-oriented sites, JC Penney enlisted EVB to create a game called "Dork Dodge" and it was an instant hit with the test audience.

From a retailer's perspective, this is just what is needed. Retailers trying to reach new money and recruit money from other areas need to re-think where they are spending money, and that means thinking outside the box. Trying to reach any teen audience means almost completely bypassing television and print and going directly to the web. And, if you can, integrating mobile into that strategy however possible.

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• Applied Materials Inc. (NASDAQ: AMAT) Q2 profits declined on a glut of flash memory chips.
• Bally Technologies Inc. (NYSE: BYI) beat Q3 expectations and offered full-year guidance.
• Barclay's (NYSE: BCS) reported a big Q1 loss on credit-related write-downs.
• Constant Contact Inc. (NASDAQ: CTCT) saw big increases in Q1 revenues and in its customer base.
• Deere & Co. (NYSE: DE) Q2 profits rose on international demand, but results just missed estimates.
• Fluor Corp.'s (NYSE: FLR) strong Q1 results are a signal for the energy sector, says Jim Cramer.
• Freddie Mac (NYSE: FRE) Q1 loss widened on the housing slump, but not as much as forecast.
• IndyMac Bancorp Inc. (NYSE: IMB) narrowed its loss but predicted it wouldn't see a profit in 2008.
• LDK Solar Co. Ltd. (NYSE: LDK) Q1 earnings topped forecasts and it raised its outlook.
• MBIA Inc. (NYSE: MBI) reported a larger-than-expected Q1 loss due to write-downs.
• Mindray Medical International Ltd. (NYSE: MR) beat Q1 expectations and raised its full-year guidance.
• Nuance Communications Inc. (NASDAQ: NUAN) Q2 earnings were in line with analysts' expectations.
• ON Semiconductor Corp. (NASDAQ: ONNN) beat Q1 expectations and raised its Q2 revenue forecast.
• RealNetworks Inc. (NASDAQ: RNWK) beat Q1 estimates and announced share buybacks and a spin off.
• Salary.com Inc. (NASDAQ: SLRY) missed Q1 forecasts, leading to analysts' downgrades.
• Sykes Enterprises Inc. (NASDAQ: SYKE) beat Q1 estimates and raised its Q2 and full-year forecast.
• Syniverse Holdings Inc. (NYSE: SVR) beat Q1 expectations on strength in "messaging and mobil data."
• Toll Brothers Inc. (NYSE: TOL) warned of lower Q2 profits and more "challenging times" ahead.
• Website Pros Inc. (NASDAQ: WSPI) reported flat earnings despite soaring revenues and operating income.

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• AnnTaylor Stores Corp. (NYSE: ANN) sees Q1 profits beating estimates but reaffirmed the full-year outlook.
• Blockbuster Inc. (NYSE: BBI) beat Q1 earnings expectations but fell short of revenue estimates.
• Electronic Arts Inc. (NASDAQ: ERTS) posted strong Q4 and full-year results on titles such as Rock Band.
• Fossil Inc. (NASDAQ: FOSL) forecast Q1 earnings just a penny below analysts' estimates.
• IMAX Corp. (NASDAQ: IMAX) doubled its Q1 loss and missed Wall Street's expectations.
• JC Penney Co. Inc. (NYSE: JCP) profits fell 50%, and it predicted trouble would continue through the year.
• Kohl's Corp. (NYSE: KSS) posted a smaller-than-estimated Q1 profit decline and cut its full-year outlook.
• Liz Claiborne Inc. (NYSE: LIZ) swung to a Q1 loss on restructuring but beat analysts' expectations.
• Lumber Liquidators Inc. (NYSE: LL) posted strong Q1 results despite the housing slump.
• Macy's (NYSE: M) beat low Q1 expectations despite weak same-store sales.
• Nissan Motor Corp. (NASDAQ: NSANY) Q4 profit surged but it warned of lower profits this year.
• Nordstrom Inc. (NYSE: JWN) posted smaller-than-estimated Q1 profit decline and cut its full-year outlook.
• Priceline.com Inc. (NASDAQ: PCLN) beat Q1 expectations due to increased bookings.
• Sirius Satellite Radio Inc. (NASDAQ: SIRI) posted a narrower Q1 loss in line with expectations.
• Sony Corp. (NYSE: SNE) swung to a Q4 profit but fell short of Wall Street estimates.
• Sprint Nextel Corp. (NYSE: S) beat low Q1 estimates as its loss widened on charges and lost subscribers.
• Tiffany & Co. (NYSE: TIF) projected beating Q1 earnings forecasts and raised its dividend.
• Wal-Mart Stores Inc. (NYSE: WMT) posted Q1 profits up on international growth and bargain shoppers.
• Whole Foods Market Inc. (NASDAQ: WFMI) Q2 profits fell due to the Wild Oats acquistion.
• XM Satellite Radio (NASDAQ: XMSR) reported a bigger-than-expected Q1 loss and a surge in subscribers.

MOST NOTEWORTHY: The Department store sector, SanDisk and CNET Networks were today's noteworthy downgrades:

• Goldman downgraded the department store sector to Neutral from Attractive after raising its 2008 oil forecast to $149 from $115, as it believes higher gas prices will impact consumer discretionary spend and sentiment. Goldman downgraded JC Penney (NYSE: JCP) and Nordstrom (NYSE: JWN) to Neutral and also removed Kohl's (NYSE: KSS) from its Conviction Buy List.
  
• JMP Securities downgraded SanDisk (NASDAQ: SNDK) to Underperform from Market Perform based on increased competition in NAND, a potential decline in royalty income, valuation, and lack of catalysts from flash-based solid state drives.
  
• CNET Networks (NASDAQ: CNET) was cut to Neutral from Buy at Banc of America following the tender offer from CBS (NYSE: CBS).

OTHER DOWNGRADES:

• Merrill downgraded Regions Financial (NYSE: RF) to Sell from Neutral.
  
• B. Riley downgraded Exar (NASDAQ: EXAR) to Neutral from Buy.
  
• Albermarle (NYSE: ALB) was lowered to Neutral from Overweight at JP Morgan.

Retail giant JC Penney (NYSE: JCP) reported its first quarter numbers this morning, and reported that the current economic environment led to a pretty hefty 50% drop in its net income.

The company stated that the cut back in consumer spending was to blame for the drop in net income, and predicted that the tough times were far from over. In its earnings report, the company estimated that the difficult times could easily last for the remainder of the year.

Despite the 50% drop in income, and poor business outlook for the rest of the year, the stock is actually in the green today, as traders have pushed shares of the retailer up 1.7% to $45.01, up $0.76. The reason... the company was able to beat Wall Street estimates.

The earnings season continues to roll on, and next week's results offer a peek at the state of fashion retailing, as a variety of companies -- from the discount to the upscale, from the hip to the pedestrian -- are scheduled to report earnings.

Analysts surveyed by Thomson Financial expect earnings growth, compared to the same period in the previous year, from Urban Outfitters (NASDAQ: URBN) to be 22.7% to 22 cents per share, from Wal-Mart Stores (NYSE: WMT) to be 9.3% to 75 cents per share, and from TJX Companies (NYSE: TJX) to be 7.5% to 40 cents per share.

Analysts expect earnings declines from the previous year from JC Penney (NYSE: JCP) by 52.9% to 49 cents per share, from Kohl's (NYSE: KSS) by 34.4% to 42 cents per share, and from Nordstrom (NYSE: JWN) by 18.3% to 49 cents per share.

In the case of Abercrombie & Fitch (NYSE: ANF), analysts expect earnings to remain flat, year over year, at 65 cents per share.

And then there's Macy's (NYSE: M), which is expected to swing to a loss of 2 cents per share, compared to a profit of 16 cents a year ago.

The sample size may be too small to define any significant trends, but the numbers do suggest that analysts expect profit declines to be deeper than profit growth, and that consumers may be more likely, given the current state of the economy, to buy clothes at Wal-Mart or TJ Maxx than at Nordstrom or Abercrombie.

The coming results will reveal if those expectations are correct.

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• American International Group Inc. (NYE: AIG) reported a loss of $7.8 billion but raised its dividend.
• Barr Pharmaceuticals Inc. (NYSE: BRL) missed earnings estimates and lowered its guidance.
• D.R. Horton Inc. (NYSE: DHI) posted a larger-than-expected Q2 loss on further write-downs.
• Fannie Mae (NYSE: FNM) posted its third straight quarterly loss on the continuing housing slump.
• Hansen Natural Corp. (NASDAQ: HANS) lower-than-estimated Q1 profit led shares to a 52-week low.
• Lazard Ltd. (NYSE: LAZ) net income dropped 71% on a fall-off of M&A activity and a write-down.
• MGM Mirage Inc. NYSE: MGM) Q1 profits were dragged down by decreased consumer spending.
• Pilgrims Pride Corp. (NYSE: PPC) widened its Q2 loss due to the rising cost of feed.
• Playboy Enterprises Inc. (NYSE: PLA) swung to a Q1 loss as revenue declined in all units.
• Qwest Communications (NYSE: Q) net income and revenue fell in the first quarter.
• Scotts Miracle Gro Co. (NYSE: SMG) blamed a slow start to spring for its Q2 profit decline.
• Teva Pharmaceutical Industries Inc. (NASDAQ: TEVA) posted a Q1 loss due to a charge.
• THQ Inc. (NASDAQ: THQI) posted a loss for its fourth quarter and revenues flat for the year.
• Toyota Motor Corp. (NYSE: TM) posted lower-than-expected Q4 results due to the U.S. economic slump.
• Warner Music Group Corp. (NYSE: WMG) Q2 loss widened and it suspended its quarterly dividend.

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• Activision Inc. (NASDAQ: ATVI) posted stellar results on the popularity of Guitar Hero and Transformers.
• Airgas Inc. (NYSE: ARG) beat Q4 estimtates with record earnings and raised its guidance.
• Amkor Technology Inc. (NASDAQ: AMKR) beat Q1 expectations on strong demand for wireless.
• Anadarko Petroleum Corp. (NYSE: APC) reported strong Q1 results that beat Wall Street estimates.
• Barnes Group Inc. (NYSE: B) beat Q1 expectations on its "global reach" and raised its 2008 guidance.
• Coinstar Inc. (NASDAQ: CSTR) beat Q1 expectations and raised its full-year guidance.
• DirecTV Group Inc. (NASDAQ: DTV) posted better-than-expected results and announced share buybacks.
• Double-Take Software (NASDAQ: DBTK) beat Q1 expectations and raised its Q2 and 2008 guidance.
• Goldcorp Inc. (NYSE: GG) profits surged in the first quarter on record high gold prices.
• ICON plc (NASDAQ: ICLR) beat Q1 expectations and raised its full-year guidance.
• Marvel Entertainment Inc. (NYSE: MVL) easily beat Q1 estimates and raised its full-year guidance.
• Molson Coors Brewing Co. (NYSE: TAP) reported a surge in Q1 profits that beat Wall Street estimates.
• Panera Bread Co. (NASDAQ: PNRA) beat Q1 expectations and lifted its Q2 and 2008 forecasts.
• Symantec Corp. (NASDAQ: SYMC) beat Q4 expectations and raised its Q1 outlook.
• Transocean Inc. (NYSE: RIG) Q1 profits more than doubled due to soaring oil prices.
• Unilever (NYSE: UL) posted strong results, with revenues beating estimates for the first time in six years.
• UTStarcom Inc. (NASDAQ: UTSI) released a preliminary guidance well above expectations.
• Walt Disney Co. (NYSE: DIS) posted better-than-expected results on success of its theme parks.

What's a tell-tale sign of a recession, and conversely, an indicator investors/readers should monitor to spot when the recovery has started? Retail sales -- particularly at department stores.

Most retailers will report March 2008 same-store sales this week, and Wall Street is bracing for the worst. In January 2008 and February 2008, same-store sales declined at nearly every major department store, including JC Penney (NYSE: JCP), Macy's (NYSE: M), Kohl's (NYSE: KSS), Dillard's (NYSE: DDS) and Nordstrom (NYSE: JWN).

Further, investors should watch Nordstrom's same-store sales carefully. The reason? Upscale retailer Nordstrom is a type of quick-reference, or an economic-barometer-in-a-snapshot, of the depth of a recession. If retail sales decline at broader-demographic retailers for several consecutive months, that points to a recession. But if sales decline at upscale retailer Nordstrom, that's a sign that even those with higher incomes and substantial assets are cutting back, which is a bad sign for the economy.

Nordtstrom's customers include professionals, executives and business owners -- including people who make hiring decisions. If they're cutting back, that may indicate they will not be hiring in the period ahead, which is never good news for the economy. Invariably, it means the recession's end is not near.

In Q4 2007, Nordstrom's sales fell 4.4% and earnings per share fell for the first time in more than five years to 92 cents per share. If Nordstrom's same-store sales decline again in March, that's a sign of continued belt-tightening by upper-middle and upper-income adults, and a sign that an economic recovery is not near.

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• AAR Corp. (NYSE: AIR) posted record third-quarter earnings and revenue.
• Adobe Systems Inc. (NASDAQ: ADBE) posted better-than-estimated first-quarter results and raised its outlook.
• CKE Restaurants Inc. (NYSE: CKR) posted third-quarter results that missed estimates.
• ConAgra Foods Inc. (NYSE: CAG) third-quarter profit surged as strong sales offset commodity prices.
• Darden Restaurants Inc. (NYSE: DRI) beat third-quarter expectations and offered guidance.
• FactSet Research Systems Inc. (NYSE: FDS) second-quarter results beat estimates and it raised its outlook.
• Fortress Investment Group (NYSE: FIG) remained upbeat despite a fourth-quarter loss.
• Guess Inc. (NYSE: GES) record fourth-quarter results beat Wall Street expectations.
• Inter Parfums Inc. (NASDAQ: IPAR) posted better-than-estimated fourth-quarter results and raised its outlook.
• Jabil Circuit Inc. (NYSE: JBL) beat second-quarter expectations but lowered its guidance.
• JC Penney Co. Inc. (NYSE: JCP) lowered its first-quarter outlook on weaker-than-expected sales.
• KB Home (NYSE: KBH) swung to a larger-than-expected first-quarter loss on write-downs.
• Lennar Corp. (NYSE: LEN) posted a smaller-than-expected first-quarter loss.
• Monsanto Co. (NYSE: MON) raised its second-quarter and full-year guidance.
• Oracle Corp. (NASDAQ: ORCL) merely met earnings expectations, sending shares lower.
• Tiffany & Co. (NYSE: TIF) posted better-than-estimated fourth-quarter results and raised its outlook.
• Usana Health Sciences Inc. (NASDAQ: USNA) posted lower-than-expected first-quarter results.
• Walgreen Co. (NYSE: WAG) posted solid second-quarter results, including same-store sales growth.

Also, auction-rate securities issues may hurt some tech company results. Analysts keep cutting earings estimates for the big banks, but some are eyeing Yum! Brands (NYSE: YUM) earnings prospects as it expands in China, as well as Archer Daniels Midland (NYSE: ADM) on soaring demand for commodities.

Upcoming results to watch for include Best Buy (NYSE: BBY), Monsanto (NYSE: MON), and Research in Motion (NASDAQ: RIMM).

Visit AOL Money & Finance for more earnings coverage.

MOST NOTEWORTHY: Quiksilver, Omniture and Crown Holdings were today's noteworthy upgrades:

• B. Riley upgraded shares of Quiksilver (NYSE: ZQK) to Buy from Neutral on valuation and to reflect the EPS catalyst and debt reduction associated with divesting Rossignol.
  
• Friedman Billings upgraded shares of Omniture (NASDAQ: OMTR) to Outperform from Market Perform following the recent pullback, as they believe the company is in its best competitive position ever, which should drive increasing win rates and help restore pricing power.
  
• Banc of America upgraded shares of Crown Holdings (NYSE: CCK) to Buy from Neutral to reflect the company's international exposure and believes metal packaging companies should be better able to manage input inflation.

OTHER UPGRADES:

• UBS raised AmerisourceBergen (NYSE: ABC) to Neutral from Sell.
  
• Stephens raised its rating on Amedisys (NASDAQ: AMED) to Overweight from Equal Weight.
  
• Nordstrom (NYSE: JWN) and JC Penney (NYSE: JCP) were upgraded to Buy from Neutral at Goldman Sachs.