* What: Dec same-store sales seen up 3.4 pct-Thomson Reuters
* When: 22 major U.S. retail chains report Jan. 4-5
* Costco, Saks, Target seen leading, Gap and Penney lagging
* Sales momentum held up in second half of December
(Updates with latest estimates)
By Phil Wahba
Jan 3 (Reuters) - When top U.S. retailers post their December sales this week, Wall Street analysts expect them to report a healthy end to the holiday season, helped by discounts, improved consumer sentiment and tactics such as extended hours and layaways.
Some 22 major chains, from Macy's Inc (M.N) and Target Corp (TGT.N) to Costco Wholesale Corp (COST.O) and Gap Inc (GPS.N), should post an aggregate 3.4 percent increase in December sales at stores open at least a year, according to Thomson Reuters, capping a season that started moderately but gained steam in December.
The big challenge for retailers this holiday season was how to attract shoppers without decimating margins.
"Ever since the recession, retailers have had to do a lot more to get shoppers to open their wallets," said Catherine Moellering, an executive vice president at retail consulting firm Tobe.
Companies such as Macy's, which offered a lot of exclusive merchandise, were better able to hold on to their pricing power, she said.
Other top gainers are expected to be discount chains such as Costco, with its cheaper gasoline, and Target as shoppers sought out low prices.
Higher up the price spectrum, chains such as Saks Inc SKS.N, and Nordstrom Inc (JWN.N) should also do well, helped by the continued recovery of high-end spending and a stock market that rebounded after swooning earlier in the fall.
Overall sales picked up in the second half of December and Macy's and Victoria's Secret parent Limited Brands Inc LTD.N have enjoyed better-than-expected sales this holiday season, said Nomura Equity Research analyst Paul Lejuez.
J.C. Penney Co Inc (JCP.N) was one of the most "promotional" retailers in the days after Christmas, he said.
Penney and Gap, which are under pressure to slash prices to lure price-conscious shoppers, are expected to be laggards again after seeing sales declines in November.
Penney comparable sales should be up 0.2 percent , while Gap's are expected to slip 1.2 percent, hurt by a 2.7 percent drop at its low-price Old Navy chain, according to Thomson Reuters data.
Kohl's Corp (KSS.N) will also be closely watched after a unexpected and sharp drop in same-store sales for November. Analysts expect its December same-store sales to rise 2.3 percent after a gain of 3.9 percent in December 2010.
If December sales for the 22 chains meet expectations, that would be just above December 2010's 3.1 percent jump.
Earlier reports suggested December was shaping up to be a good month, helped by last-minute shopping and strength after Christmas Day. The ICSC/Goldman Sachs weekly chain store sales index rose 4.5 percent during the week ended Dec. 24.
The National Retail Federation in mid-December raised its sales forecast to a 3.8 percent increase for November and December, from 2.8 percent, based in part on a strong start to December.
November same-store sales rose 2.9 percent, according to the Thomson Reuters index, missing analyst forecasts, despite a record turnout on Black Friday, the day after Thanksgiving that puts the season into high gear.
For a graphic on same-store sales: link.reuters.com/byw75s</A1 >
MARGINS UNDER PRESSURE
The same-store sales number does not include results from major chains such as Wal-Mart Stores Inc (WMT.N), Best Buy Co Inc (BBY.N) and Sears Holdings Corp (SHLD.O) and therefore only gives a partial snapshot of the retail season.
Wal-Mart's discount chain alone counts for 11 percent of total U.S. retail sales. When the company, which stopped reporting monthly results in 2009, was included in the Thomson Reuters index, it accounted for 50 percent of the tally.
Last quarter, Wal-Mart finally broke a nine-quarter streak of U.S. same-store sales declines.
Janney Capital Markets expects that improvement to continue in the holiday quarter with a rise of 1.9 percent, helped by its layaway program, which allows shoppers to pay in installments.
Retail sales rose 5.2 percent during the 2010 holiday season despite weakness at Wal-Mart. Strong sales at Wal-Mart will be crucial to declaring this season a winner for U.S. retailers.
But in spite of better consumer spending, it was a competitive season that saw chains try to undercut each other through low prices, compromising margins.
The pressure to give deals even after Christmas was on full display last week at Champlain Centre mall in Plattsburgh, New York. Victoria Secret was offering a 'Buy 1 get 1 50 percent off' deal on select bras, while Old Navy was selling jeans for adults for $15 and kids jeans for $10.
The level of discounting this holiday was "of concern," Tobe's Moellering said.
"How do we get consumers to pay full price ever again?" she said.
One potential dark cloud for chains that are reliant on clothing sales, such as Macy's, Penney and Kohl's is the warm December across much of the country that likely dented sales of cold-weather gear.
(Reporting By Phil Wahba; Editing by Andrew Hay, John Wallace and Andre Grenon)
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