August 4, 2005

Retail sales miss forecasts, shares fall

By Emily Kaiser

CHICAGO (Reuters) - U.S. chain stores ranging from Gap Inc.
to Nordstrom Inc. posted disappointing July sales on Thursday
as a heat wave curbed demand for fall back-to-school fashions,
sending retailing stocks lower.

Wal-Mart Stores Inc. was among the few retailers whose
sales beat expectations, helped by the hot weather that drove
demand for air conditioners, and a busy hurricane season that
prompted people in stricken regions to stock up on food and
other supplies.

Teen-oriented stores posted hit-or-miss results, with those
showing the right fashions like paint-washed jeans reporting
huge July sales gains. But some of the biggest names, including
Gap, Limited Brands and Abercrombie & Fitch Co. missed Wall
Street forecasts.

Overall, July sales at stores open at least a year -- a key
measure known as same-store sales -- rose 3.7 percent from a
year earlier, shy of Wall Street expectations for a 4.2 percent
increase and a drop from June's sizzling 5.4 percent gain.

Ken Perkins, president of Retail Metrics, which compiled
the sales tally, said 59 percent of retailers missed July
expectations, but he added that the weak showing did not
necessarily portend a disappointing fall season.

"Heading into the key back-to-school season, the consumer
is in pretty good shape," he said. "I don't think this
signifies that consumers are tapped out or the back-to-school
season is in jeopardy."

The Standard & Poor's retailing index shed 2.3 percent in
midday trading, its biggest one-day decline in four months.
Apparel stocks were particularly hard hit, with decliners
outnumbering gainers by nearly four to one.

Analysts said the heat wave that engulfed much of the
United States last month may have backfired for clothing
retailers because customers were more interested in shorts and
T-shirts from clearance racks than full-priced fall fashions.

Consultants SDI Weather Trends said this July is expected
to rank in the top 10 hottest in 111 years.


July is usually quiet for U.S. retailers, accounting for
the smallest portion of their fiscal second-quarter sales.
However, it is considered an early indicator of back-to-school
demand, which peaks in August.

Back-to-school is the second-biggest shopping period behind
the November-December holiday sales season, and analysts are
watching closely for signs of a slowdown in consumer spending.

"One month isn't really going to be a good indicator of
consumer sentiment," said Charles Georgas, an analyst with
Marquis Investment Research. "It just looks like people are
delaying purchases on the apparel side until it gets cooler."

Wal-Mart, which sells more food and general merchandise
than clothing, confirmed a preliminary forecast that July
same-store sales rose 4.4 percent, slightly better than Wall
Street had predicted.

Analysts are watching Wal-Mart results closely as gasoline
prices soar, putting pressure on household budgets. Steep
energy prices hit low-income shoppers particularly hard, but
analysts said spending has shown remarkable resilience.

July department store sales were largely disappointing,
with J.C. Penney Co. Inc., Federated Department Stores Inc.,
and Nordstrom all reporting weaker-than-expected sales.

J.C. Penney said the west and southeast were its strongest
regions -- areas where schools resume early and back-to-school
demand tends to be strong in July. Overall, July same-store
sales rose just 1.6 percent, missing Wall Street expectations
for a 2.7 percent gain.

Federated's July same-store sales fell 0.9 percent, well
short of the 0.9 percent increase analysts predicted. The
retailer called the results "disappointing" but gave no reason
for the shortfall.

Nordstrom's same-store sales rose 3.6 percent, below
expectations for a 5.4 percent increase in a month that
included a major fall sale.

Gap and Limited missed forecasts, with Gap reporting a
surprising 4 percent same-store sales decline versus
expectations for a 1.2 percent increase.