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Major Retailers Post Modest Sales Gains for May

AP
Thursday, 7 Jun 2007 | 3:29 PM ET

Americans shopped hesitantly during May, giving retailers modest relief from a dismal showing in April but still raising questions about how strong consumer spending will be in the months ahead.

As the nation's merchants reported results Thursday, the disappointments included Wal-Mart Stores, Macy's, and teen retailer Abercrombie & Fitch. Costco Wholesale and luxury retailers like Saks beat expectations.

"The general trend is clearly better than April but in line with expectations for what we saw in the spring," said Richard Jaffe, a retail analyst at Stiffel Nicolaus. "Are shoppers being selective? As always."

Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass., said May's performance was "clearly a bounceback from April but the gains were modest."

Perkins expects his same-store sales tally to be up 2.5 percent for the month, in line with what retailers averaged so far this fiscal year but below the 3.3 percent average for the 12 months ended in April. Same-store sales reflect business at stores open at least a year and are considered a key indicator of a retailer's health.

According to Thomson Financial's tally, 22 retailers missed expectations, while 20 beat projections. Two retailers met expectations.

May's results, helped by warmer weather, follow a rare drop in same-store sales in April -- the industry's worst performance on record -- raising concerns that higher gas prices and a weaker housing market are eating away at consumer spending.

For now, however, the cutbacks in spending appear to be contained as the overall job market remains healthy. The latest figures on unemployment benefits released Thursday by the Labor Department underscored a solid job market. The government reported that the number of Americans filing claims for jobless benefits totaled 309,000 last week, down by 1,000 from the previous week.

"Customer spending is moderating. It is not going to decline," said Donald Soares, a principal in the retail practice at the consultancy Capgemini, noting that the worst hit have been the stores who cater to the low-income shoppers.

Wal-Mart Struggles With Apparel, Home

Wal-Mart had a 1.1 percent same-store sales gain, below the 1.4 percent predicted by analysts surveyed by Thomson Financial. The figure excluded fuel sales; including fuel, same-store sales rose 1.3 percent.

The company, which reported a 3.5 percent drop in same-store sales in April, its worst performance on record, continues to struggle with its apparel and home businesses. Store executives said Thursday those categories should see big improvements in the fourth quarter.

The world's largest retailer, under pressure from investors to improve same-store sales and increase its stock price, announced last week it was scaling back its expansion plans of its supercenters. It also announced a $15 billion stock buyback. Meanwhile, the company is going back to advertising its low prices amid concerns among its shoppers about rising gas prices.

"The price rollbacks on thousands of products throughout our stores help our customers make ends meet," said Eduardo Castro-Wright, president and CEO for Wal-Mart Stores U.S. in a statement.

Still, Wal-Mart said it expects same-store sales in June to be anywhere from unchanged to up 2 percent.

Rival Target , whose cheap chic merchandise appeals to a broader shopper base beyond the low-income customer, had a 5.8 percent gain in same-store sales, slightly below the 5.9 percent estimate.

Costco had a May same-store sales increase of 7 percent. Analysts expected a 5.6 percent increase.

Among moderate-price department stores, Penney posted a 2 percent decline in same-store sales in its department store business, worse than the 0.3 percent gain analysts expected. The best performing merchandise categories were in apparel, including women's children's and men. Sales were weakest in fine jewelry, women's accessories and home categories.

Macy's, which recently changed its name from Federated Department Stores Inc., continues to struggle with the tranformation of former May Co. stores to the Macy's brand. It acquired May Department Stores Co. in 2005. The company said same-store sales fell 3.3 percent, missing its own and analyst expectations. Analysts forecast a 1 percent drop.

Investors shouldn't see a big improvement soon, as the company said it expects sales to be anywhere from unchanged to a 2 percent drop in June, due to the shift of a promotional event from May to April this year.

"While we were disappointed with sales in the month of May, the increased promotional marketing support currently being implemented for the Macy's brand is expected to improve sales trends in June and July," said Terry J. Lundgren, Macy's chairman, president and chief executive in a statement.

High-End Stores Shine

Upscale stores again shone. Saks , which operates Saks Fifth Avenue, reported a robust 37.5 percent gain in same-store sales, better than the 13.9 percent estimate. Saks said May's results benefited from a shift in the promotional calendar, a move that will hurt June results. Still, the company expects low double digit same-store sales growth for the second fiscal quarter.

Nordstrom had a 6.3 percent in same-store sales, much better than the 2.6 percent estimate.

Gap continued to languish, posting a 3 percent decline in same-store sales, though results were better than the 4.4 percent drop Wall Street anticipated.

Limited had a 3 percent gain in same-store sales, much better than the 1.6 percent decline analysts expected.

Among teen retailers, Abercrombie & Fitch suffered a 5 percent drop in May, worse than the 1.2 percent decline. Bebe had a 3.0 percent drop in same-store sales, worse than the 2.8 percent analysts had projected.

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