Despite a last-minute buying binge that boosted retail sales last weekend and appears to be continuing this week, merchants are cautious about profits from the Christmas season.

Much of the increased business is the result of stepped-up promotions and early markdown that will take their toll on earnings, say retailers and retail analysts on Wall Street.

Profit improvements will not match the sales gains for most stores, retail observers say, and more than a few merchants will have no significant sales gains for most stores, retail observers say, and more than a few merchants will have no significant sales gain if inflation is subtracted from their Christmas volume figures.

This year, more than usual, the retail story of Christmas will be told in January, when the stores end their fiscal year with the traditional sales that clear out the winter merchandise in anticipation of spring.

That means last weekend's buying spree, which many merchants are bragging about, does not tell the full story of the season.

While last Christmas some merchants reported their sales increased by 15 percent or more, the biggest increase mentioned by local merchants is a "doubt digit" and "almost double digit" assessment of sales at the two Bloomingdale's stores.

President Walter Bell said sales were 'up to expectations' at the W. Bell & Co. catalogue showrooms, which were some of the busiest stores in the area the week before Christmas.

Heaviest demand, Bell added, was for consumer electronic items, with strong sales on goods ranging from computer games and video toys to high fidelity components.

Woodward & Lothrop sales were "slightly better than planned, nothing phenomenal," said William McDonald, vice president for sales promotion.

He said sales came on strong last week, when stores badly needed good business to make up for the slow start to the selling season. As a result, McDonald added, "investors are in much better shape" than they appeared to be a week before Christmas.

High inventories after Christmas can force retailers to mark down a broader assortment of goods and to make sharper price cuts than are usually needed to clean out the stores.

That hasn't happened at Woodies, McDonald said, but earnings still will be off somewhat. "We'll all take a bit of a shaving on profits," he said, refering to retailers in general.

"The enormous amount of promoting advertising" that most stores did earlier this month helped spur consumers to spend, McDonald said, suggesting consumers are motivated both by fear that prices will go higher next year and the availability of bargains.

Raleighs "moved our sale up just one week" to spur business before Christmas, said Ike Diamond, vice president for sales promotion of the local clothing chain.

He said men's clothing sales are "way ahead" of last year, furnishings - ties, belts and similar men's wear items - are about the same as last year and woman's apparel is "considerably ahead" of the previous year.

But profits, Diamond said, will be "a little sluggish" for Raleights because early fall sales were slow to pick up and the chain felt the effect of increased competition, particularly from the new Lakeforest Mall at Gaithersburg, where the Raleighs store will not be completed until spring.