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Consumers Boost Spending But Seek Values

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The Associated Press

Published: May 9, 2008

NEW YORK - Consumers gave some of the nation's retailers a little relief in April after months of dismal sales, gravitating toward less-expensive discounters and wholesale clubs but generally still shying away from stores selling clothes and other non-necessities.

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, but most mall-based apparel stores struggled.

"Consumers are focusing on value and price points and stretching their dollars," said Ken Perkins, president of RetailMetrics, 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 and 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 with 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. raised its earning outlook 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 with 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.

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