July 7, 2005

Retail sales strong; profit view rosier

CHICAGO (Reuters) - U.S. shoppers snapped up summer
clothing and air conditioners in June as a heat wave generated
the strongest monthly sales growth since March 2004, retailers
said on Thursday, calming concerns that steep energy prices
slowed consumer spending.

June is typically a month of clearance sales as retailers
make room for back-to-school merchandise, but analysts said the
strong summer demand meant many chains kept discounts to a
minimum. This bodes well for quarterly profits.

"Consumers clearly shook off record-high oil and gas prices
during June and flocked to the nation's retailers as consumer
spending correlated nicely with significant gains in consumer
confidence," said Ken Perkins, president of Retail Metrics.

"Pent-up demand for summer apparel and seasonal merchandise
due to poor May weather spilled into June and fueled sales," he

Overall, June sales at stores open at least a year -- a key
retail measure known as same-store sales -- rose 5.4 percent,
ahead of expectations for a 4.8 percent increase, according to
Swampscott, Massachusetts-based Retail Metrics. That was the
biggest gain since a 6.7 percent jump in March 2004.

Retailers such as Target Corp. and J.C. Penney Co.
Inc. raised quarterly earnings forecasts after their
June sales handily beat Wall Street's expectations. Shares of
both companies rose in early New York Stock Exchange trading.

The Standard & Poor's retailing index was little
changed, however, as deadly blasts on London's transit system
rattled global stock markets.

Deutsche Bank analyst Bill Dreher said the strong sales and
profits from the likes of Target and J.C. Penney suggested that
U.S. consumers were increasingly willing to spend more money
for style.

"The companies that are selling the cool stuff are doing
extraordinarily well," he said. "It reflects the U.S.
consumers' willingness to trade up a little bit. They're
looking for something at a medium price point rather than the
entry price point."

That's a welcome change for discount chains, which had been
under pressure in recent months as soaring gasoline prices
curbed discretionary spending. Wal-Mart Stores Inc.
reported its biggest sales gain in 13 months.


Luxury chains continued their strong run, with Neiman
Marcus Group Inc. and Nordstrom Inc. both
topping Wall Street forecasts. Teen retailers, including
Abercrombie & Fitch Co. , turned in double-digit sales

An unusually cool spring had left many retailers overloaded
with summer clothing and outdoor gear, but in June rising
temperatures across much of the country drove shoppers into

Merrill Lynch said weather-driven demand was up 3 percent
for the month, following three consecutive months of declines,
citing data gathered by its Planalytics weather consultants.

Wal-Mart, the world's biggest retailer, confirmed that its
June same-store sales rose 4.5 percent, ahead of its forecast
for a 2 percent to 4 percent gain. Analysts had expected just
3.7 percent growth, according to estimates compiled by Reuters.

But Wal-Mart also said expenses continued to pressure
profits, and the stronger June sales probably would not be
enough to push quarterly earnings above Wall Street forecasts.

Wal-Mart forecast a 3 percent to 5 percent increase in July
same-store sales at its stores open at least a year, compared
with a 3.2 percent rise last year.

Rival Target said June same-store sales jumped 9 percent,
and it now expects earnings of 58 cents per share for the
current second quarter. Analysts had expected 53 cents,
according to Reuters Estimates.

J.C. Penney raised its second-quarter earnings forecast
after June same-store sales rose 7.4 percent, well ahead of
analysts' expectations for a 4.6 percent increase. The retailer
now expects quarterly earnings of 35 cents to 40 cents per
share. Wall Street was expecting 32 cents.

Upscale department store Nordstrom reported an 8.1 percent
jump in June same-store sales, ahead of forecasts for a 7
percent increase. Neiman Marcus said June same-store sales rose
9.2 percent.