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

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



NEW YORK - The sluggish sales that have dogged the nation's retailers this year are the result of two quite different sets of problems: Consumers are cautious — they're paying more for gasoline and watching their home values fall. And, the stores just don't seem to have the merchandise that people want to buy.

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As retailers reported generally disappointing July sales results Thursday, it was clear that the weakening housing market and more expensive gas had shoppers limiting their trips to the mall and, when they did go, buying tentatively, following a pattern that began back in February.

But analysts say stores can't blame all their problems on macro-economic conditions. Even teen retailers like Pacific Sunwear of California Inc. and Wet Seal Inc., which tend to be least vulnerable to the whims of the economy, had a bad month. That suggests to analysts that stores are not serving up the most exciting products.

"There is a big middle that is treading water, trying to figure out what their consumers are looking for," said Trish Walker, partner in the retail practice at the consulting firm Accenture.

John Morris, managing director of Wachovia Securities agreed, noting that consumers may not have an urge to go to the mall since "a lot of fall trends are extensions of what worked in the spring and summer." They include khaki shorts and baby doll tops in heavier fabrics.

Meanwhile, sales of electronics like flat-screen TVs haven't been suffering.

According to the International Council of Shopping Centers-UBS preliminary tally of 48 stores, July results were up 2.6 percent, compared to the 3.9 percent gain in the year-ago period. The tally is based on same-store sales or sales at stores opened at least year, which are considered a key barometer of a retailer's health.

The July results were in line with the modest 2.3 percent same-store sales pace so far this fiscal year, which started in February, but is well below the 3.9 percent average in the year-ago period.

Still, the picture this month 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 helped boost 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.

Stores are also blaming another trend: A growing number of schools are starting classes later, delaying back-to-school purchasing. Teens usually wait to do some of their shopping until they see what their friends are wearing. Morris argued, however, that if there was a clear hot fashion trend, "teens wouldn't need to wait."

The weak sales reports do not bode well for retailers' second-quarter profits, which are scheduled to be announced starting next week. According to Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass., second-quarter earnings growth should be up a modest 2.5 percent, reduced from 7.0 percent in early May amid increased discounting and sluggish sales. On Thursday, Talbots Inc. was among several stores that cut earnings forecasts.

Wal-Mart Stores Inc. also said its profit margins were being squeezed due to heavy discounting. The world's largest retailer posted a 1.9 percent same-store sales gain, beating the 1.5 percent estimate of analysts surveyed by Thomson Financial. The discounter said it was encouraged by positive early signs in back-to-school categories, but acknowledged that apparel and home furnishings were again weak and are expected to remain so through the third quarter.

The company is expected to report its second-quarter earnings results on Tuesday.

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

Costco Wholesale Corp. reported a 7 percent increase in same-store sales, exceeding the 5.5 percent estimate, while J.C. Penney Co. 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. The results beat the 4.2 estimate.

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

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

Talbots only issued a second-quarter same-store sales report, which showed a 4.8 percent decline, prompting the retailer to say it will record a loss instead of a profit for the period. In a statement, Talbots said it believes "its customers have become increasingly more discriminating regarding their discretionary spending."

As for the teen sector, many store executives blamed the tax holiday shifts in Texas and Florida as a major negative factor. Still, Morris said that teen merchants' business in the Midwest and West Coast were also below expectations, weakness that he said stores couldn't explain.

Accenture's Walker reasoned that young consumers are spending more of their dollars on consumer electronics like iPods, fancy cellphones and laptop computers.

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.