Retailers report sluggish July sales By ANNE D'INNOCENZIO, AP Business Writer

Retailers report sluggish July sales By ANNE D'INNOCENZIO, AP Business Writer
1 hour, 5 minutes ago



NEW YORK - The back-to-school shopping season had a disappointing start in July as consumers rattled by a weakening housing market and other financial pressures stayed away from stores and malls.

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As merchants reported sluggish monthly sales results Thursday, the weakest performers were mall-based apparel chains, particularly teen merchants like Pacific Sunwear of California Inc. and Wet Seal Inc. Wal-Mart Stores Inc. posted a slim gain but warned that its increased discounting are hurting profit margins.

Among the few standouts were J.C. Penney Co. and Costco Wholesale Corp., both of which beat expectations.

"Overall, July sales were negatively impacted by soft mall traffic," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "The consumer is holding up, but certainly feeling the pinch of the housing market and higher gasoline price."

According to Thomas Financial, 15 retailers beat expectations, while 29 missed estimates.

July's results extended the slowing sales trend retailers have experienced since February as consumers are forced to pay more for food and gas. The slumping housing market and a widening credit crunch, both of which have made the stock market turbulent, are also making consumers shy about spending.

Still, the picture was made more complicated because of some quirks in the retail calendar. Sales for the first week of August, a key back-to-school week, were reported in this year's July period, which did help July figures but should reduce business for August. And results were depressed by a shift in a tax free sales week to August in two critical states, Florida and Texas, which analysts say helped delay shopping.

Analysts also point out that an increasing number of schools are starting classes later, delaying back-to-school purchasing. Teens usually wait to do the bulk of their shopping until after school starts because they want to see what their friends are wearing.

Wal-Mart posted a 1.9 percent gain in same-store sales or sales at stores open at least a year. Same-store sales are considered a key barometer of a retailer's health. The results beat the 1.5 percent estimate of analysts surveyed by Thomson Financial, and the discounter said it was encouraged by positive early signs in back-to-school categories. However, it acknowledged that apparel and home furnishings were again weak and are expected to remain so through the third quarter.

Wal-Mart also said that while customers are responding to price cuts on more than 16,000 products started in July, the heavier discounting is hurting profits. The company is expected to report its second-quarter earnings results on Tuesday.

Meanwhile, rival Target Corp.'s same-store sales rose 6.1 percent, above the 5.9 percent forecast.

Costco reported a 7 percent increase in same-store sales, exceeding the 5.5 percent estimate, while J.C. Penney posted a robust 10.8 percent gain in its department store business, above the 9.8 percent forecast.

Nordstrom Inc. reported that same-store sales rose 9.4 percent as the well-heeled customer continues to splurge.

Macy's Inc. had a 1.4 percent decline in same-store sales for the month, in line with the 1.5 percent analysts expected.

Limited posted a 3 percent same-store sales drop, worse than the 0.5 percent forecast.

Gap Inc. fell short of expectations, posting a 7.0 percent decline in same-store sales. Analysts had forecast 4.9 percent drop.

AnnTaylor Corp. posted a 5 percent decline in same-store sales, worse than the 3.4 percent expected.

Teen retailers were hit hard, though many store executives blamed the tax holiday shifts in Texas and Florida as a major factor. According to John Morris, managing director at Wachovia Securities, Pacific Sunwear and Hot Topic Inc. have the biggest exposure to these markets among teen merchants, with 19.8 percent and 15.4 percent of their stores located in Florida and Texas, respectively.

Still, while Perkins noted that the tax issue was a big factor, he said it was puzzling to see how poorly teen retailers fared. "There might be some fashions issues, but it is too soon to tell," he said.

Abercrombie & Fitch Co.'s same-store sales fell 4 percent, worse than the 0.7 percent expected. American Eagle Outfitters Inc. announced that same-store sales fell 6 percent; analysts expected a 2.9 percent increase.The company added that customers are responding well to the back-to-school collection.

Hot Topic had a 7.4 percent decline in same-store sales, worse than the 7.1 percent estimate.

Wet Seal suffered a 7.2 percent decline, worse than the 5.0 percent projection, while Pacific Sunwear had a 4.6 percent slide; analysts anticipated a 3.2 percent gain. Bebe Stores Inc. posted a 6.3 percent decline, steeper than the 4.6 percent forecast.