Jul 10, 2008
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Retailers avoid June swoon; tax rebates help

Jul 10, 2008

By Martinne Geller

NEW YORK (Reuters) - Summer weather, aggressive promotions and tax rebates sent many U.S. consumers shopping in June, giving retailers struggling in the weak economy their strongest month in more than a year.

About two-thirds of U.S. retailers reporting June sales results exceeded Wall Street expectations, according to Retail Metrics. The tracking firm also said the average gain was 4 percent, the biggest monthly increase since March 2007.

Retail chains that offer good value performed best -- a sign that cash-strapped consumers are still looking for bargains as they grapple with soaring food and fuel costs, declining home values and job uncertainty.

Discount giant Wal-Mart Stores Inc and off-price retailers TJX Cos Inc and Ross Stores Inc all reported better-than-expected June sales and as a result raised their second-quarter earnings forecasts.

Wal-Mart said sales at its U.S. stores open at least a year, or same-store sales, rose 5.8 percent in June, topping analysts' average forecast of 3.8 percent.

The world's No. 1 retailer said its grocery, entertainment and health and wellness segments were strongest, and that warm weather and improved merchandise assortments boosted seasonal sales of items such as clothes and toys.

The discounter also said tax rebate checks, sent to millions of consumers in recent weeks as part of a federal economic stimulus package, contributed to increased store traffic.

Discount chain Family Dollar Stores Inc, which sells much of its household merchandise for below $10, reported an 8 percent increase in sales, topping analysts' estimate for a 5.6 percent increase. It said earlier this month that June sales were being boosted by the tax rebates, the last of which will be sent out shortly.


Despite the overall good news, the Standard & Poor's Retail Index was down 2 percent, as investors, who were expecting a boost from the tax rebates, worried about its fleeting nature, said Joseph Feldman, a retail analyst with Telsey Advisory Group.

"I think people are trying to look beyond the stimulus checks, and saying 'Oh boy, what's going to happen?'," said Feldman.

While there may be worries that sales will slump again, he said discounters like Wal-Mart, Costco Wholesale Corp, BJ's Wholesale Club Inc and Family Dollar will "continue to be fine because it's the one area of retail that people are going to still be shopping at."

Morningstar analyst Joseph Beaulieu said there was also some disappointment that the tax rebates, which totaled about $110 billion, really only helped the discount chains and not a wider swath of the sector.

TJX, which operates the T.J. Maxx and Marshalls chains, said its 5 percent increase in same-store sales was "well above" its expectations and its chief executive credited the favorable weather.

Last month was the warmest June in 50 years, but extreme weather in some regions caused variations in shopping behavior, according to weather-tracking firm Planalytics.

"While businesses from Texas to the Northeast received a strong summer boost, those with heavy store footprints in the flooded Midwest or in fire-ravaged California were hampered," said Scott Bernhardt, Planalytics chief operating officer.

Ross Stores also cited warm weather as a reason for its strong performance, citing Texas and the mid-Atlantic region as its strongest markets.


June is often a time for seasonal clearance sales, as retailers aim to clear out unsold spring and summer merchandise to make room for new back-to-school clothes -- the second-biggest shopping period of the year.

Pacific Sunwear of California Inc and Aeropostale, which both target teenagers, reported larger-than-expected increases in June same-store sales, citing increased promotions.

Children's Place Retail Stores Inc, which saw June sales rise to double analysts' estimates, said sales were strongest during the week of its semi-annual sale.

While clearance sales often drive traffic, the low prices can eat into sales totals and profit margins.

Limited Brands Inc posted a worse-than-expected 9 percent same-stores sales decline and said soft traffic at its Bath & Body Works chain forced it to run deeper promotions than last year. Same-store sales fell 8 percent at Bath & Body works and 12 percent at its Victoria's Secret stores.

An even bleaker spot was department stores including Saks Inc, J.C. Penney Co Inc and Dillard's Inc, which all missed analysts' expectations.

Saks and Nordstrom Inc, which met analysts' expectation for an 18.6 percent sales decline, both blamed the timing of sales events that were moved up and therefore pulled sales from June into earlier months.

(Additional reporting by Nicole Maestri; editing by John Wallace, Leslie Gevirtz)

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