The retail and apparel sector is sending investors mixed signals about what to expect for the last two months of 2009. 

Retail stocks have handily rebounded from the November lows of 2008, with many key retailers seeing gains of 150%, 200% and more.  Now there is the pesky question of valuations, when you consider what the companies are offering up for guidance in the all-important holiday season for 2009.

Wal-Mart (WMT) probably gives investors a better picture of what is going on out there than any other retailer, because it now has the widest customer base out there in the trade-down economy.  WMT earnings rose 9% and were above estimates (84 cents vs. 81 cents), and sales rose just under 1% to $99.4 billion (under estimates of $99.9 billion). The retail giant noted that sales would have been up 3.8% to $101.3 billion if it wasn’t for the pesky U.S. dollar conversion

But Wal-Mart’s key same-store sales fell 0.4%.  If more shoppers are being forced to head to Wal-Mart than ever before, and same store sales are still off, that shows that even Wal-Mart can fall victim to a pressed consumer’s thriftiness.  What to expect for WMT then, is a range of -1% to +1% for the Q4 same-store sales period.

  Luxury Retail Stocks to Benefit This Christmas

Kohl’s (KSS) was another winner in a slight trade-down environment, but was also cautious ahead for the Q4 holiday season. 

Kohl’s profit rose by 20% to $193 million and reported earnings per share of 63 cents compared to Wall Street estimates of 61 cents.  Sales were up 6.5% to $4.1 billion. Kohl’s reported same-store sales up by 2.4% in the quarter and up 1.4% in October.  The earnings forecast was $1.14 to $1.24 EPS for the holiday quarter, but analysts were already looking for $1.25 EPS.

Target Corp. (TGT) is on deck with earnings next week.  While the company talked about great inventory management, sales being better than internal expectations at +2.8% total and no loss in same-store sales, the company’s hedge was its statement that it is operating “in what continues to be a challenging economic environment.” 

Sears Holdings Corporation (SHLD) is another key piece for the retail and apparel picture reporting earnings next week.  The issue here is that Sears is still trying to find its footing, and its earnings history has been very spotty. Many refuse to correlate Sears to any part of the economy at all.

There are a couple factors coming into play here.  The same-store sales figures for some retailers are starting to look very good, because the October and November 2008 period was right when Joe Public put an absolute clamp-down on personal spending for items like clothing.  And if the economy holds up, then there will also be growth at the same-store sales figure level into early 2010. 

But one issue here is “forward valuations.” CEOs and CFOs are just not very clear on their guidance, and that is troubling.  It sets the market up to have to play the game of “good hits and bad misses” ahead of seeing what the real mall and store traffic is for the holidays.  With a lack of solid guidance, and with inventories running very tight, you just have to wonder if the after-Christmas sales in the Q4 retail period will be dominated by gift card spending by those seeking discounts.

A wild card is the flu season.  This has yet to impact the economy and failed to impact peoples’ actions of going out in public.  But if a real pandemic spreads, beyond what feels like press-hype reports on flu and swine flu, then suddenly there is going to be a great push to online sales.  In that game, not every retailer can compete with the broad offerings that Amazon.com (AMZN) offers.

Next week will give a broader picture of what the holiday season will look like for retail and apparel in the fourth quarter, as there are about 20 companies on deck for earnings.  It is always tempting to make bold predictions, but with the valuations of a times-earnings multiple (P/E) coming in at 15-times to 20-times earnings, there is just not a lot of room for error. It is still too soon to make a declaration on how this holiday season is going to pan out for retailers.

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