Back to School Shopping Boosts Retail Sales

Shoppers persevered at the nation's stores and malls in August, buying skinny jeans and other back-to-school fashions and giving many retailers solid sales for the month. Still, there were some signs of consumers' financial strain in merchants' results, leaving the outlook for the holiday season unclear.

As retailers reported their results Thursday, the winners included Wal-Mart Stores Inc. (WMT) and many teen retailers such as Abercrombie & Fitch Co. and Wet Seal Inc.

J.C. Penney Co. (JCP), AnnTaylor Stores Corp. and Target Corp. (TGT) were the big disappointments. Gap Inc. (GPS) again struggled with its fashions.

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Overall, "the early signs are that back-to-school is doing better than expected," said Jharonne Martis, an analyst at Thomson Financial. "Parents have budgeted for back-to-school."

John Morris, managing director at Wachovia Securities, was less upbeat, noting that the August results masked consumers' financial struggles since the month's business is dominated by back-to-school shopping that is less vulnerable to economic woes.

"Teens are not likely to feel first hand the impact of the slowdown," he said. He also believes that Wal-Mart and other low-price operators stole share from some of the mall-based apparel retailers, underscoring that consumers are concerned about the economy.

Still, the generally solid performance in August -- a time when stores aim to do the bulk of their back-to-school business -- is comforting as some analysts fear a dramatic consumer spending slowdown in the second half; their concerns were heightened after June's sales stalled but business rebounded in July, helped by clearance sales of summer goods. After a slow start to the back-to-school season, business in August gained momentum even as concerns increased about the consumer's resilience.

The International Council of Shopping Centers-UBS preliminary sales tally of 52 retailers rose 2.9 percent in August, compared to the year-ago period, but that figure is expected to be revised upward to about 3.3 percent after drug stores report their results next week, according to Michael P. Niemira, chief economist at the trade association. The tally is based on same-store sales, or sales at stores opened at least a year, a key indicator of a retailer's health.

August's performance compares to a 3.5 percent increase in July and a revised 3.0 percent gain in June.

Last week, the Commerce Department reported that sales of new homes dropped in July by the largest amount since February while the inventory of unsold homes climbed to a record high. And according to the latest snapshot of the job market, hiring slowed in July as employers added just 113,000 jobs. That provided more evidence that companies are growing more cautious.

The government will announce August employment figures on Friday. On Thursday, it said the number of people filing first-time claims for unemployment benefits fell last week.

Bad news about the economy weighed on consumers in August, causing their confidence to tumble even more than expected to its lowest level in nine months, according to the New York-based Conference Board.

Wal-Mart, which benefited from a more focused back-to-school advertising campaign, had a 2.7 percent gain in same-store sales. Analysts polled by Thomson Financial expected a 2. 5 percent gain.

Rival Target had a 2.8 percent gain in same-store sales, below the 3.1 percent Wall Street estimate. This was the second month in a row that Target's same-store sales missed Wall Street projections.

Penney posted a 0.5 percent decline in same-store sales in its department store business, below the 1.8 percent increase analysts had expected. The company reported weaker sales of big ticket items, particularly furniture, which was up against stronger sales gains a year ago.

Federated Department Stores Inc. (FED), which acquired May Department Stores Co., last year, had a 3.8 percent gain in same-store sales, slightly below than the 4.0 percent Wall Street expected. Same-store sales include only Macy's and Bloomingdale's. On Sept. 9, Federated will be converting most of its former May Co. locations to the Macy's brand.

Nordstrom said its same-store sales rose 7.1 percent; analysts expected a 3.3 percent gain.

Mall-based apparel stores had a mixed performance.

Limited had a 9 percent gain in same-store sales, better than the 6.2 percent estimate from analysts. But AnnTaylor Stores Corp. had a modest 1.9 percent gain in same-store sales, below the 3.1 percent increase that Wall Street expected.

Gap, dragged down by business at its namesake stores and Old Navy, had a 7 percent decline in same-store sales, worse than the 3.4 percent analysts expected.

Teen retailers did well, rebounding from a modest performance in July.

Abercrombie & Fitch had a 6 percent gain in same-store sales, better than the 2.1 percent estimate from analysts.

Wet Seal, which operates Wet Seal and Arden B. stores, had a 8.7 percent gain in same-store sales in August, better than the 7.0 percent forecast. But teen retailer Pacific Sunwear of California Inc. struggled with a 9.4 percent drop in same-store sales, worse than the 4.6 percent decline Wall Street estimated.

On Wednesday, Costco Wholesale Corp. (COST) reported a 5 percent increase in same-store sales, missing the 5.7 percent estimate. The wholesale club operator issued the sales report as it warned that fourth-quarter profit would be below analysts' estimates, as sales on items like jewelry and furniture slowed and the company struggled with higher gas prices.

American Eagle Outfitters Inc. reported an 11 percent gain in same-store sales in August, better than the 9.1 percent estimate from analysts.

Hot Topic Inc. suffered a 6 percent drop in same-store sales, worse than the 5.7 percent analysts expected.

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