Among Retailers, Discounters Fare Best in October : Sales: Upscale department stores and luxury item vendors feel effects of consumers’ lack of confidence. One analyst says “things aren’t getting better.”

Hopes for a happy holiday selling season plunged further Thursday as the nation’s largest retailers reported sluggish sales for October.

The figures underscore a spate of recent polls showing that Americans are increasingly worried about the economy and afraid to spend their money freely. Analysts said consumer confidence levels are still in a free fall.

“Sales are so bad that talking about it can only make matters worse,” said one Wall Street adviser to retail operators. “The sad fact is that things are awful, and they’re not getting any better.”

However, Wall Street investors, who apparently feared even worse news, cheered Thursday’s sales reports, driving up the prices of many retailers’ shares. But with a tough holiday season approaching, some analysts remained mystified by the stocks’ rally.

Hardest hit among the retailers are upscale department stores and luxury goods that cater to white-collar workers who are victims of the current recession and cuts in the thrift, aerospace, insurance, high-technology and real estate industries. Department stores heavily dependent on sales of big-ticket appliances also suffered, as the level of consumers’ disposable income sunk.

Meanwhile, discount store operators are faring rather well, reflecting the easier economic times for blue-collar workers and the flight of more affluent Americans to discount and value-oriented outlets.

Discount retailer Wal-Mart Stores Inc. continued to outperform the rest of the industry. Gap Inc. and Merry-Go-Round Enterprises Inc., both specialty apparel retailers, once again outran other clothing merchants.

But analysts warned that some of the October sales reports looked healthier than they actually were.

“You have to remember that the business was falling away rapidly at this time last year,” making 1991 sales appear stronger, said David Poneman, an analyst with Sanford C. Bernstein & Co. In October, 1990, consumers cut purchases amid worries about the Persian Gulf crisis and the economy.

Here’s what the stores reported in sales from stores open at least a year, a measurement believed to be a more accurate assessment of performance than overall sales because it tracks the same number of stores from the prior year:

* Wal-Mart reported that sales at stores open at least a year rose 9%, while overall sales were up 35%.

* Kmart said same-store sales rose 1.7% and overall sales gained 6%.

* Sears said same-store sales rose 0.4%, while overall business was up 0.5%.

* Dayton Hudson reported same-store sales rose 6%, with overall sales gaining 12%.

* J. C. Penney continued to falter, reporting a 2.4% drop in same-store sales and a 2.9% drop overall.

* May Department Stores said same-store sales were up 0.6%, while overall sales rose 8.7%.

* Gap reported a 17% surge in same-store sales, with overall business rising 36%.

* Limited Inc., the nation’s largest specialty apparel retailer, said same-store sales rose 4%, with overall sales rising 16%.

* Pic ‘N’ Save said its sales from continuing operations for the month of October (four weeks ended Nov. 3, 1991) were up 11.6% from the prior year.

Retail Stocks Soar

Investors snapped up retailers’ shares on Thursday, apparently on relief that October sales didn’t collapse. But with a tough holiday season approaching, some analysts are mystified by the stocks’ rally.

Thurs. Point Pct. Stock close gain gain Circuit City 23 3/4 +2 3/4 +13.1% Limited 26 1/2 +2 3/4 +11.6% Nordstrom 38 3/4 +2 1/2 +6.9% Dayton/ Kmart 44 3/8 +2 3/8 +5.7% Gap 48 3/4 +2 1/8 +4.6% Wal-Mart 48 7/8 +2 +4.3% May Dept. Stores 52 1/8 +1 5/8 +3.2%