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Americans Back To School But Not Back To Shopping

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By ANNE D'INNOCENZIO

The Associated Press

Published: September 4, 2008

NEW YORK - Early reports from several retailers including J.C. Penney Co. and Kohl's Corp. confirmed on Wednesday what Wall Street had expected: a weak start to the back-to-school shopping season.

The sluggish August results, which came a day ahead of when most of the nation's merchants are set to announce sales, weren't encouraging as the industry prepares for the critical holiday season.

J.C. Penney Co. said same-store sales at its department store business dropped 4.9 percent, slightly better than the 6.3 percent drop that analysts surveyed by Thomson Reuters had projected. Penney also predicted a mid- to high single-digit decrease in same-store sales for the current month. Same-store sales are sales at stores opened at least a year and are considered a key indicator of a retailer's health.

Kohl's announced a 5.8 percent drop in same-store sales, though the decline was less steep than the 7.6 percent expected by analysts. Meanwhile, Pier 1 Imports said its same-store sales for the second quarter fell 1.7 percent.

Walgreen Co.'s same-store sales rose a modest 0.9 percent in August, well below the 3.2 percent gain forecast by analysts.

One bright spot was Costco Wholesale Corp. It announced a 9 percent same-store sales increase in August as higher gas prices boosted sales. Analysts had expected a 9.6 percent gain. Excluding the effect of higher gas prices, Costco's U.S. same-store sales rose 6 percent. The warehouse club has been benefiting as shoppers focus on buying in bulk to save money.

"Consumers are spending less this back-to-school season, and it doesn't bode well for the holiday season," said Ken Perkins, president of research company RetailMetrics LLC.

Perkins said his same-store sales index, which tracks 38 merchants, will be up 1.5 percent for August, compared with his original estimate of 1.6 percent. Excluding Wal-Mart and drugstore results, he expects August's same-store sales growth to be just 1.3 percent.

The big problem, Perkins noted, is the lack of discretionary income that shoppers have as their paychecks are not keeping up with soaring prices on basic items. That is not expected to change soon.

Myron "Mike" Ullman, chairman and chief executive officer of Penney's, told investors during a Goldman Sachs retail conference Wednesday that he expects the sluggish environment to continue into 2009.

The latest reports announced Wednesday showed a spotty performance in nonessentials. Penney's said in its statement that women's apparel and family shoes were the strongest performing merchandising divisions last month, and fine jewelry and home furnishings posted the weakest sales of the month.

Kevin Mansell, Kohl's president and chief executive, said in a statement that some traditional back-to-school business such as footwear and children's performed well, but other areas such as young men's and the teen girls business were more challenging.

"We continue to manage our inventory levels and expenses conservatively in this environment," Mansell said.

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