Nov. 27 (Bloomberg) -- U.S. retailers, offering holiday discounts of 50 percent or more this week, may see profits erode even as customers flock to stores.

Wal-Mart Stores Inc. will mark down toys and TVs online through this week, while Kohl's Corp., the fourth-biggest U.S. department store, sold jewelry at 60 percent off during the first days of the holiday shopping season, which started the day after Thanksgiving, so-called Black Friday. Analysts said a lack of ``must-have'' products in 2007 means retailers will rely on lower prices, threatening margins in the biggest quarter of the year.

Sales in November and December may increase at the slowest pace since 2002, according to the National Retail Federation, as rising fuel and food prices discourage consumers from purchasing higher-priced gifts. The NRF said shoppers each spent an average 3.5 percent less this year during the weekend after Thanksgiving.

``Black Friday draws crowds, how about profits?'' Roxanne Meyer, a CIBC World Markets Corp. analyst in New York, wrote yesterday in a note to clients. ``The majority of sales are still ahead.''

Retailers' shares rose, with the Standard & Poor's 500 Retailing Index gaining 1.8 percent at 4:11 p.m. New York time. Macy's Inc., the second-biggest U.S. department-store chain, increased 1.1 percent to $28.52 in New York Stock Exchange composite trading, and Menomonee Falls, Wisconsin-based Kohl's jumped 1.2 percent to $48.06. Wal-Mart, the world's largest retailer, rose 80 cents, or 1.8 percent, to $45.83.

More Discounts

More than two-thirds of online retailers surveyed by the Washington-based NRF offered Internet discounts or free shipping to entice consumers. Barnes & Noble Inc. was selling books for as much as 40 percent off, while Circuit City sold digital cameras for 30 percent less.

Bentonville, Arkansas-based Wal-Mart, which started its October holiday promotions a week earlier than last year, was selling Microsoft Corp.'s Xbox 360 with games and accessories for $399, less than the $479.66 it would normally cost.

``The discounters, in general, should have done very well,'' said Jay McIntosh, the director of Ernst & Young LLP's retail and consumer products practice. ``It should have been a season where the consumers were trading down.''

Consumer confidence fell in November to the lowest level since the aftermath of Hurricane Katrina in 2005. The New York based Conference Board said its confidence index decreased to 87.3 from 95.2. The median forecast among economists was 91.

Emphasizing Incentives

``We see retailers continuing to emphasize incentives, not just on Friday and Monday,'' EBay Inc. Chief Financial Officer Bob Swan said today on a conference call with analysts. He cited spending on the company's auction sites, Shopping.com Web site and PayPal service over which retailers electronically process payments.

``People are a little bit cautious in light of general economic conditions,'' he said.

ShopperTrak RCT Corp. reported an 8.3 percent gain in sales the day after Thanksgiving, a bigger increase than it expected. The NRF said 147 million customers visited stores, up 4.8 percent from a year earlier.

Even with the increase in sales, both groups left their holiday forecasts unchanged since the weekend sales gains probably were skewed toward deals on flat-panel TVs and electronic picture frames as well as purchases of low-margin cashmere sweaters, said Todd Slater, an analyst at Lazard Capital Markets LLC.

``Our view is that sales largely missed plan,'' Slater said in a research note.

Forecast Unchanged

U.S. retail sales rose 2.5 percent for the week through Nov. 24 at stores open more than a year, the International Council of Shopping Centers, a group of mall operators, said today. The ICSC and UBS Securities LLC forecast a 2.5 percent increase for November and December same-store sales.

Sales at stores open at least a year may increase 2.5 percent this month, matching a previous forecast, according to an e-mailed statement from the council and UBS Securities LLC.

Consumer purchases over the Internet rose 29 percent on Thanksgiving Day and 22 percent the day after, Reston, Virginia- based ComScore Inc. said. Spending on so-called Cyber Monday, promoted by the NRF beginning in 2005 as the first online shopping day after the weekend, probably exceeded either of those days as people return to work, it said.

In the Black

Online visits on Black Friday, called that because it was considered the day that retailers traditionally turned a profit for the year, increased 10 percent from a year earlier, according to data by New York research firm Nielsen Online.

Walmart.com chief Raul Vazquez said yesterday that sales on Black Friday climbed more than 60 percent compared with a year earlier.

``We feel even more bullish coming out of Thanksgiving and Black Friday because of the strong days we had,'' Vasquez said in an interview.

American Eagle Outfitters Inc., the U.S. retailer of clothing for 15- to 25-year-olds, said today it was ``pleased'' with the Thanksgiving weekend. Italy's Safilo Group SpA, the world's second-largest maker of eyeglass frames, said sales on Black Friday ``went very well.''

Sales in November and December represent 20 percent of retailers' annual revenue, according to the NRF. The fourth quarter accounts for almost a third of retailers' annual profit, according to the ICSC.

Shoppers spent an average of $347.44, 3.5 percent less than a year earlier, on purchases from Nov. 22 through Nov. 25, the NRF said, citing a poll by BIGresearch.

The NRF in September predicted a 4 percent gain in total retail sales for November and December, the smallest gain since a 1.3 percent rise in 2002.

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina at 1348 or cburritt@bloomberg.net.

Last Updated: November 27, 2007 16:20 EST