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A last-minute surge of deal-seeking shoppers delivered better-than-expected holiday sales as nervous retailers lured latecomers with extended hours and steep discounts.The next question: How sharply will those discounts cut into profit margins? U.S. retail sales, excluding automobiles and gasoline, are on track to rise about 3.8% in November and December compared with a year ago, according to Michael Niemira, chief economist of the International Council of Shopping Centers.mulberry bagsThe results are something of a surprise to experts, who had originally forecast a weaker shopping season."Consumers are behaving in an unexpected way, spending more and taking more risk with credit," said Hana Ben-Shabat, a partner in the retail practice of global management firm A.T. Kearney. "The consensus going into the season was that consumers were still worried about the economy and jobs and were very cautious." Still, this year's results remain more subdued than in 2010, when sales rose 4.1%. And merchants said the outlook remains cloudy. Retailers say it is difficult to predict if shoppers will continue to spend freely amid continued uncertainty over the job market, wages and the European debt crisis."My biggest concern is the unknown of where the economy is going," Neal Black, chief executive of Jos. A Bank Clothiers Inc., said.mulberry sale In 2008, the company began discounting aggressively, assuming that the recession would last 18 to 24 months, as previous economic slowdowns had done. Three years later, the company is still discounting. "I don't see enough consumer enthusiasm to say 2012 will be a slam dunk," Mr. Black said.The tentative economic climate led retailers to steeper markdowns than last year, according to John Morris, a retail analyst at BMO Capital Markets, who says clothing chains' discounts rose about 7% versus last year. Abercrombie & Fitch Co., for example, marked the entire store 40% off compared to 30% off a year ago during the week before Christmas."The competition was more cutthroat among retailers this year," Mr. Morris said. For many retailers, the discounts were planned and baked into their earnings estimates—and some price tags were higher to start with. But stores also resorted to slashing prices to move merchandise, particularly coats and sweaters in the Northeast where the weather remained unseasonably warm. Shoppers began piling back into stores in the days leading up to Christmas, coinciding with the release of some positive economic news on jobless claims and housing starts. A consumer sentiment index released Dec. 22 showed consumer moods were at their highest level since June.Scott Hoyt, senior director of consumer economics at Moody's Analytics, said he was skeptical that Americans have really loosened the reins on spending. "Clearly, high unemployment and weak wage growth is the elephant in the room, and until that core issue is addressed we are going to have sluggish consumer spending," he said. With steep discounts and free shipping on all products, Best Buy Co. was recently able to log a sales gain for the first time in six quarters. But earnings for the quarter ended Nov. 26 skidded 29% and profit margins narrowed.Target Corp. held sales on toys and electronics in the middle of the month to make up ground it lost to Wal-Mart Stores Inc.'s revived layaway program, according to retail analysts. mulberry bags for saleTarget estimated that its gross profit margin would be down modestly in the quarter, but David Strasser, retail analyst at Janney Capital Markets, said he thinks Target's discounts will take a bigger bite out its margins than the company anticipated. Looking ahead to 2012, Andy Hall, chief executive of Stage Stores Inc., expects customers to remain tight-fisted. A chain of about 800 moderately priced department stores, Stage is planning its inventory accordingly, focusing on value-oriented items, Mr. Hall said."We're planning the year pretty conservatively," he said. "Our customers will be pretty frugal."