Retailers report mixed sales results in July

SOURCE:

AP

2008-08-07 08:21:39

Retailers report mixed sales results in July

NEW YORK – The outlook for the back-to-school shopping season seemed grim Thursday, as retailers’ July sales reports showed an increasing shift toward buying necessities at discounters and away from nonessentials like clothing.

With the benefits of the government stimulus checks fading, the big worry is how much shoppers — squeezed by high gas and food prices — will retrench in the critical months ahead.

As the nation’s retailers reported monthly sales, Wal-Mart Stores Inc. and Costco Wholesale Corp. posted solid gains.

But Wal-Mart, the world’s largest retailer, reported that July sales came in a bit below Wall Street forecasts and noted that shoppers are increasingly running out of money. It projected that sales would slow in August as the benefits from the stimulus checks dry up.

Many apparel stores including Limited Brands Inc., Abercrombie & Fitch Co. and Pacific Sunwear of California remained in a malaise.

“Consumers are in a fair amount of pain,” said Ken Perkins, president of research company RetailMetrics LLC. He worries that without the government stimulus money, shoppers won’t have any incentive to splurge on back-to-school merchandise.

“This is going to be a very promotional, challenging back-to-school season,” he added.

According to a preliminary sales tally by Thomson Financial, 12 of the retailers it tracks beat estimates while 19 missed expectations. The tally is based on same-store sales, or sales at stores opened at least a year. Those are considered a key indicator of a retailer’s health since they eliminate any boost from newly opened stores.

Consumers are finding that their paychecks are not keeping up with rising food and gas prices. They’re also dealing with tighter credit, a housing slump that doesn’t look like it will be ending anytime soon and a weaker job market. Such fears have dragged down consumers’ outlook for the economy to the lowest level in decades, according to the Conference Board.

A report on unemployment Thursday underscored the woes in the job market. The Labor Department reported that the number of newly laid-off people signing up for jobless benefits last week climbed to its highest point in more than six years as companies cut back. New applications for unemployment insurance rose by a seasonally adjusted 7,000 to 455,000 for the week ending Aug. 2, putting claims at their highest level since late March 2002.

Facing these increasing financial worries, Americans have been shopping at lower-price alternatives — which has helped stores like Wal-Mart and Costco. But Thursday’s sales reports show that even discounters, which had been the biggest beneficiaries of the stimulus checks in recent months, are facing tougher times.

Wal-Mart reported a 3 percent gain in same-store sales for July, missing the 3.4 percent gain expected by analysts polled by Thomson Financial. The results excluded gasoline sales. Including gasoline results, same-store sales would have been up 3.7 percent.

The discounter said that same-store sales increased in grocery, entertainment, and health and wellness, but that its home and apparel business posted small declines. Wal-Mart noted that it saw sales momentum building in back-to-school offerings across the store and expects the momentum to carry through the August period.

Still, the company forecast only a modest same-store sales gain of 1 percent to 2 percent for August.

“With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month,” Eduardo Castro-Wright, president of Wal-Mart’s U.S division, said in a statement.

Chief rival Target Corp., which has been stumbling in recent months, said that same-store sales slipped 1.2 percent, worse than the 0.3 percent decline that Wall Street expected. The discounter has a higher percentage of nonessentials like clothing and home furnishings compared to Wal-Mart.

Costco reported a 10 percent increase in same-store sales, beating the 7.8 percent estimate from analysts. Excluding gas prices, same-store sales would have been up 6 percent.

Limited Brands reported a 5 percent decline in same-store sales, though results were better than the 7.4 percent drop Wall Street expected.

Gap suffered an 11 percent same-store sales drop in July, a larger decline than the 7 percent decline analysts had expected.

Pacific Sunwear of California posted a 4 percent drop in same-store sales, worse than the 0.4 percent estimate from Wall Street.

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