Consumers give stores some relief but still

spend cautiously

Monthly sales reports issued Thursday were better than expected, but still
pointed to a consumer contending with rising gas prices, sagging home values and
worries about jobs. Wal-Mart Stores
Inc. and Costco Wholesale
Corp. were among the top performers last month, while most mall-based
apparel stores struggled.
"Consumers are focusing on value and price points and stretching their
dollars," said Ken Perkins president of RetailMetrics LLC, a research company in
Swampscott, Mass. "They are
feeling the pinch on multiple fronts."
He and other analysts expect only a modest uptick in sales in May and June as
consumers spend tax rebate
checks that are starting to arrive.
"There's too much going on," in the economy, Perkins said. He and others
expect shoppers to use the extra cash to pay down debt and catch up on utility
and food bills.
According to a preliminary tally from Thomson Financial, 19 retailers beat
estimates, while nine missed. The tally is based on same-store sales, or
business at stores open at least a year; they are considered a key indicator of
a retailer's health.
Analysts said some retailers were forced to discount to bring business in.
With the retailing first quarter having ended at the end of April, companies
will start reporting their earnings next week, and any heavy markdowns will
likely erode the profits of some companies.
Perkins estimates earnings for the industry will decline by 14.9 percent,
compared to a projection in January of 5.3 percent profit growth. Still,
earnings would be worse if retailers hadn't been prudent about cutting costs and
scaling back inventory, he said. In fact, Kohl's Corp. actually raised its earning outlook on
Thursday.
The UBS-International Council of Shopping Centers retail sales tally for
April rose 3.6 percent, surpassing the 2 percent growth estimate. That followed
a 0.5 percent decline the previous month, the weakest March in 13 years.
The retail industry expected a lift in April because of an extra shopping day
last month compared to a year ago. That quirk depressed March sales by an
estimated 2 percentage points, while inflating April figures, according to
Michael P. Niemira, chief economist at the International Council of Shopping Centers. Analysts
look at retail sales growth for the two months combined, which overall was a
tepid 1.5 percent, in line with the average sales growth since the beginning of
the industry's fiscal year.
A deteriorating economy, soaring food and gas prices, limited credit and
slumping home prices continue to unnerve shoppers. The Conference Board said
late last month that Americans are gloomier about the economy than just before
the U.S. invasion of Iraq in March 2003.
The Federal Reserve reported
Wednesday that consumer borrowing, particularly on credit cards and auto loans,
rose in March at the fastest pace in four months, more than double the increase
of the previous month. Perkins believes that increased borrowing could mean some
consumers spent their tax rebates in advance of receiving the money.
In a statement Thursday, Eduardo Castro-Wright, Wal-Mart Stores U.S. president and CEO, said the
"economy continues to get tougher" and that customers increasingly are unable to
stretch their dollars to the next pay day.
"As money gets tighter for them toward the end of the month, sales drop more
than we have seen in the past," he said.
Wal-Mart, which is rolling
out more discounts, reported a 3.2 percent gain in same-store sales. Analysts
polled by Thomson Financial expected a 2.1 percent gain. Including fuel,
same-store sales climbed 3.8 percent.
The world's largest retailer said business was helped by strong sales in
grocery and health items as well as entertainment products like flat-panel TVs, video games and game
consoles. The company said apparel sales continued to recover, despite cold
weather, but home furnishings sales were weak.
Rival Target Corp. posted a
3.1 percent gain in same-store sales, below the 4.5 percent estimate, as
consumers shopped for necessities such as food and skipped higher-priced items
such as jewelry.
Costco reported an 8
percent increase in same-store sales, surpassing the 6.1 percent estimate.
Among department stores, Penney reported a 1.7 percent decline in same-store
sales, though that was better than the 4.6 percent decline analysts expected.
The top-performing merchandising areas in April were apparel and family
footwear, while fine jewelry and home categories continued to experience weaker
sales.
Nordstrom Inc. posted a 3.8
percent drop in same-store sales, worse than the 1.8 percent analysts expected.
Limited Brands reported a 5
percent drop in same-store sales, below the 2.3 percent forecast.
Gap Inc suffered a 6
percent drop in same-store sales, worse than the 1.9 percent analysts
anticipated.
Teen apparel chains had solid results, however; they often outperform other
apparel retailers because teens are not forced to choose between necessities and
their wardrobes.
Abercombie & Fitch Co. reported a 6 percent gain in same-store sales,
surpassing the 2.3 percent estimate. Aeropostale Inc., whose clothing is about 30 percent
cheaper than competitors like Abercrombie & Fitch, reported a 25 percent
increase in same-store sales for the month. The figure surpassed the 7.1 percent
estimate.
Pacific Sunwear of California
Inc. posted a 4 percent increase in same-store sales, below the 5.6
percent estimate.