Low inventory levels dampen July retail sales

Anne D'innocenzio

Friday, Aug. 9, 2002 | 10:02 a.m.

NEW YORK -- Scant inventories and consumer skittishness dampened July sales for many retailers, but a number of merchants raised their profit outlook Thursday as they didn't have to resort to heavy discounting to get rid of summer shorts and T-shirts.

As the nation's largest merchants reported their sales for the month, even the discounters stumbled. The month, typically not busy as stores clear out their summer leftovers to make room for back-to-school merchandise, was slower than usual as there wasn't much to move out.

Wal-Mart Stores Inc., 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 indictor 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 sales declines that were steeper than what Wall Street expected.

"It was a soft month, but the good news is that due to stronger sales in June, there was less inventory for July," said Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd. "That bodes well for the earnings picture."

Specialty retailers, including Talbots Corp., Gap, AnnTaylor Stores Corp., and Abercrombie & Fitch Inc. all increased their second-quarter earnings outlook Thursday. Wal-Mart and Federated said they would at least meet -- if not exceed -- Wall Street projections for the period.

The Bank of Tokyo-Mitsubishi Ltd's preliminary same-store sales survey was up 2.9 percent, slightly 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.

"Overall, I think we are seeing some signs of hesitance on the part of the consumers," said Scott Hoyt, director of consumer economics, at Economy.com in West Chester, Pa. "On the other hand, overall consumer spending is still healthy. Consumers have the income to spend, and they are taking advantage of low interest rates."

He added, "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 Thursday 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.

The economic uncertainty has helped send more consumers to discounters.

Wal-Mart, despite disappointing July results, still reported a solid same-store sales gain of 4.5 percent for the month. Analysts polled by Thomson First Call expected a 5.3 percent increase. Total company sales were up 7.1 percent.

Wal-Mart blamed its sales 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. Total sales were up 8.7 percent.

TJX announced that its same-store sales were down 1 percent, short of the 1.8 percent gain Wall Street expected. Total sales were up 9 percent.

Meanwhile May announced that same-store sales were down 6.2 percent, larger than the 3.8 percent decline that Wall Street analysts expected. Total sales were down 3.3 percent.

Federated reported that same-store sales were down 5.2 percent, steeper than the 1 percent decline that Wall Street anticipated. Total sales were down 3.3 percent.

"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.

Gap, which continues to struggle, announced that same-store sales were down 8 percent, worse than the 6.3 percent decline that analysts had expected. Total sales were up 1 percent.

Other selected July sales figures for leading retailers: