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Retail Does Better Than Expected

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The Associated Press

Published: June 6, 2008

NEW YORK - Tax rebate checks gave consumers a little extra money in their pockets during May, but most were still spending conservatively, buying necessities such as food and gas and shying away from splurging on clothing or furniture. The result was some better-than-expected sales for the nation's retailers, with lower-priced merchants such as discounters and wholesale clubs showing the strongest gains.

Accordingly, Costco Wholesale Corp. and Wal-Mart Stores were among the strongest performers, but fewer rebate dollars made their way to the mall, and retailers such as Gap and American Eagle Outfitters missed expectations.

"It was a great month for discount retailers, but the rest of retail is struggling to capture a share of the consumer's wallet," said Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle.

Overall, results were better than the gloomy May analysts predicted as consumers still shopped despite rising energy costs, declining home values and tightening credit, and some analysts saw some glimmers of a possible pickup in business later this year. Tax rebate checks also helped offset rising gas prices, said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass.

"It certainly looks as though gas tanks didn't siphon off all of the rebate stimulus," he said. "Consumers were able to spend in May."

Wal-Mart was one of the few retailers to specifically mention a benefit from stimulus checks. The world's largest retailer said same-store sales rose 3.9 percent, or 4.4 percent including fuel sales, while analysts surveyed by Thomson Financial had predicted a 1.6 percent rise.

Tom Schoewe, Wal-Mart's chief financial officer, said that $350 million worth of tax rebate checks had been cashed in the stores so far, although he did not know what percentage of that money was actually spent at Wal-Mart. Rival Target Corp., which has a somewhat more upscale clientele, said same-store sales fell 0.7 percent. Analysts had expected an 0.2 percent drop. Health care, electronics and perishables were the company's strongest sales categories in May.

Costco's same-store sales rose 9 percent. Analysts had predicted 6.9 percent.

TJX Cos., which operates discount apparel and home furnishing stores, said same-store sales rose 2 percent, edging higher than the 1.8 percent analysts expected.

Department stores reported weaker results, but many still beat analyst expectations, and the luxury sector was strong.

J.C. Penney Co. said same-store sales fell 4.4 percent, better than the 5.8 percent analysts expected.

Luxury retailer Saks said same-store sales fell 8.7 percent as analysts were predicting a 7.5 percent drop, but that was mainly due to the shift of a clearance event into April. Combined April and May same-store sales rose 8.6 percent.

Upscale department-store operator Nordstrom reported a 10.9 percent increase in same-store sales. Analysts had predicted an 8.1 percent rise.

Mall-based apparel stores continued to struggle. Overall, according to a poll by Thomson Financial, specialty apparel same-store sales fell 3.8 percent, a bigger drop than the 3.1 percent analysts expected.

Limited Brands said same-store sales fell 6 percent, missing the 5.5 percent drop analysts expected. The company's stores include Victoria's Secret and Bath & Body Works.

Gap's same-store sales fell 14 percent, hurt by results from its Old Navy stores. The result was worse than the 9.5 percent decline analysts expected.

Teen retailers, who tend to be a little more recession-proof than other apparel merchants, had mixed results.
American Eagle Outfitters said same-store sales fell 9 percent, worse than the 4.8 percent drop analysts predicted. Aeropostale had a 6 percent rise, helped by positive reaction to its summer merchandise and meeting analyst expectations.

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