Shoppers seeking last-minute gifts and bargains helped save many retailers from a disastrous holiday performance, but the surge in sales was the result of heavy discounting that's expected to hurt fourth-quarter profits.

Although results for many were generally weak, sales at stores open at least a year -- or same-store sales -- for major retailers, including Gap Inc., Limited Inc., Wal-Mart Stores Inc. and Federated Department Stores Inc. , came in better than expected in December.

It remained clear that the value-oriented chains, particularly Wal-Mart, continued to be the big winners, achieving better-than-expected gains in the high-single digits.

And while department and apparel specialty stores like Federated Department Stores Inc., Limited Inc. and Gap Inc. continued to struggle, their sales declines were not as steep as analysts expected.

According to sales data from 84 retailers compiled by Bank of Tokyo-Mitsubishi, same-store sales rose 2.3 percent, surpassing the bank's forecast for growth of 1.5 percent. In December 2001, sales grew only 0.7 percent.

The Standard & Poor's retail index was boosted by the sales data, rising 8.75 points to 922.58 in late-morning activity. This compares with a decline in the Standard & Poor's 500-stock index of 1.54 points.

"If you look at the numbers, it looks like we had a really strong week four and five," Jeff Stinson, retail analyst with Midwest Research, said, referring to the five-week December reporting period ended in early January.

"You've got a consumer who is much more dollar-conscious this year. With unemployment rising, consumers are trying to stretch their dollar as far as possible. That's why they waited until the last minute."

Some had forecast that sales for November and December -- the period considered the holiday selling season -- could be the weakest in decades as the fallout from the Sept. 11 attacks and recession took a toll on sales.

However, data from Bank of Tokyo-Mitsubishi showed holiday sales up 2.2 percent, the smallest growth since only 1995.

"The December numbers put the season in a lot better standing now," Michael Niemira, economist at Bank of Tokyo-Mitsubishi, said.

Sales in November and December are critical because they can account for as much as one-quarter of a retailer's annual sales.

Bad News from Kmart

The upbeat news was tempered by the announcement from the nation's no. 2 discounter Kmart Corp. which said it was reviewing its current financial position and was speaking with its lenders about the situation. The long-struggling discounter reported a 1 percent decrease in sales at stores open at least a year, known as same-store sales, and has seen its market share eroded by Wal-Mart, Target Stores and other rivals.

Many analysts were already pessimistic about Kmart's earnings, but the company's disclosure of discussions with its lenders surprised some observers.

"The wording in the press release raised my eyebrows,'' said Wayne Hood, a Prudential Securities analyst. "The surprise is that they are looking for supplemental financing in addition to discussing their existing financing.''

But analyst Jeff Stinson of Midwest Research said there was nothing new in the company's statement. "It was a culmination of the news that was coming out in the last month,'' he said.

Kmart shares fell to a 30-year low last week after Hood said he would not be surprised to see the company file for bankruptcy.

Discounts Limit Profits

In an effort to entice consumers, department stores and apparel chains resorted to using the heftiest discounts on record during the holiday season, sometimes at the expense of fourth-quarter profits.

For example, Federated's same-store sales were down 8.6 percent in the month, compared with the company's expectations for a drop of 9 percent to 9.5 percent. But Federated, the parent of Macy's and Bloomingdale's, left its fourth-quarter earnings forecast unchanged at $1.85 to $2.00 a share, citing pressure from heavy markdowns.

Even Wal-Mart, which has fared better than most retailers, told investors on a recorded conference call that it expects profit margins to remain under pressure as its customers prefer lower-priced items in the weak U.S. economy.

As in recent months, discount chains like Wal-Mart and Costco Wholesale Corp. continued to prosper as bargain-conscious consumers picked up food and other household necessities.

Wal-Mart, the world's largest retailer, said sales at stores open at least a year grew 8 percent in December, topping company forecasts for gains at the high end of a range from 4 percent to 6 percent.

Net sales for the Bentonville, Arkansas-based retailer in the five weeks ended Jan. 4 rose 16.2 percent to $28.84 billion from $24.82 billion in the year-earlier period.

Issaquah, Washington-based Costco said same-store sales rose 7 percent in December, while net sales rose 13 percent to $4.27 billion from $3.78 billion.

Many department stores and apparel chains saw sales fall as consumers held off on buying clothes during the economic downturn.

Gap, the largest U.S. clothing chain, reported an 11 percent drop in same-store sales, while Wall Street analysts were looking for declines as high at 20 percent.

As a result of the better-than-expected sales, San Francisco-based Gap said its fiscal fourth-quarter loss would be no greater than its third-quarter loss of 6 cents a share. Earlier, Gap had said its fourth-quarter loss would be greater than 6 cents a share.

Total sales at Gap were unchanged from a year ago at $2.2 billion. Gap shares soared on the news, rising $1.78, or 12.26 percent, to $16.30, on the New York Stock Exchange.

Apparel chain Limited said sales at stores open at least a year fell 1 percent and that its fourth-quarter earnings would top the Wall Street consensus estimate of 51 cents a share due to better-than-expected margins.

Total sales for Columbus, Ohio-based Limited fell to $1.74 billion from $1.89 billion a year ago.

TJX Cos. Inc. , which operates off-price stores under the names of T.J. Maxx and Marshalls, reported a strong 10 percent increase in December same-store sales. Total sales at Framingham, Massachusetts-based TJX climbed 21 percent from a year ago to $1.46 billion.

Reuters and the associated Press contributed to this report.