- The Washington Times - Friday, August 9, 2002

NEW YORK (AP) Lean inventories and consumer skittishness dampened July sales for many retailers.

"The good news is that retailers had good profit margins, but the bad news is that they gave up a lot of the top line," said Richard Jaffe, an analyst at UBS Warburg Securities. He estimated that retailers ended July with 10 percent to 15 percent less inventory than the year-ago period.

As the nation's largest merchants reported their July sales for the month yesterday, even the discounters like Wal-Mart Stores Inc. stumbled. The month, typically not busy as stores clear out their summer leftovers, was slower than usual. Stores have maintained lean inventories, and given strong June sales, there wasn't much to move out in July.

Wal-Mart, the world's largest retailer, reported that sales at stores open at least a year, known as same-store sales, were slightly below Wall Street expectations. Same-store sales are considered the best indicator of a retailer's health.

Target Corp.'s same-store sales were in line with Wall Street expectations, but were below the company's forecasts. TJX Cos. also announced that July same-store sales were below Wall Street expectations.

Department stores and mall-based apparel stores again suffered, particularly Federated Department Stores Inc., May Department Stores Inc. and Gap Inc., all of which announced that their sales declines were steeper than what Wall Street expected.

The Bank of Tokyo-Mitsubishi Ltd.'s same-store sales survey was up 2.6 percent, below the 3 percent estimate, which had been lowered in late July from 4 percent.

Analysts are already looking ahead, though, wondering how a recent batch of negative economic news will affect the consumer psyche for the all-important back-to-school season, which officially starts this month.

Michael P. Niemira, vice president of Bank of Tokyo, believes the season will be "mediocre to OK," based on early indications, but it's too early to tell.

Specialty retailers were more upbeat. Talbots Corp., the Gap, Ann Taylor Stores Corp., and Abercrombie & Fitch Inc. all increased their second-quarter earnings estimates yesterday. Wal-Mart and Federated said they would at least meet if not exceed Wall Street projections for the period.

"Overall consumer spending is still healthy. Consumers have the income to spend, and they are taking advantage of low interest rates," said Scott Hoyt, director of consumer economics, at Economy.com in West Chester, Pa. "There is not a lot of reason for the consumer to go on major retrenchment mode as long as they have jobs and income."

A government report yesterday said new claims for unemployment insurance fell last week, suggesting that the pace of layoffs is stabilizing. But job growth has slowed and economists worry about the economy's staying power and fallout from a string of corporate scandals.

Such economic uncertainty has helped send more consumers to discounters.

Wal-Mart reported solid same-store sales gain of 4.5 percent for the month, but that was shy of analysts' prediction of a 5.3 percent increase.

Wal-Mart blamed its the shortfall on strong June sales of summer merchandise, which depleted inventory for July. Furthermore, the year-ago period was helped by federal tax rebates, which spurred spending on big-ticket items.

Target said same-stores sales were up 1 percent, meeting Wall Street projections.

TJX announced that its same-store sales were down 1 percent, short of the 1.8 percent gain Wall Street expected.

Meanwhile, May announced that same-store sales were down 6.2 percent, worse than the 3.8 percent decline that Wall Street analysts expected.

Federated reported that same-store sales fell 5.2 percent, steeper than the 1 percent decline that Wall Street anticipated.

"While business has been difficult all year, there was a significant deterioration in sales during the last two weeks of July, which we think was due in part to negative economic news in that period," said James Zimmerman, chairman and chief executive, in a statement.

The Gap, which continues to struggle, announced that same-store sales declined 8 percent, worse than the 6.3 percent decrease that analysts had expected.

At Sears, Roebuck & Co, same-store domestic sales fell 4.9 percent, which was in line with Wall Street's estimates.

J.C. Penney Co. posted a 2.2 percent decline in same-store sales in its department store division, slightly better than the 2.9 percent decline that Wall Street anticipated. Sales were weak in July because of low inventory levels, but the company said that inventories are back to appropriate levels for the back-to-school season.

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