Discounters still bright spot for weak retail

By Karen Jacobs

ATLANTA (Reuters) - U.S. discounters, led by Wal-Mart Stores Inc (WMT.N), remained a bright spot in a weak retail industry in August, as shoppers sought back-to-school deals, while department stores and luxury chains disappointed.

Among retailers reporting August sales on Thursday, teen apparel outlets like Aeropostale Inc (ARO.N) topped expectations, even as consumers reined in spending and curbed mall trips due to the flagging U.S. economy.

"Consumers are very focused on value, stretching their dollars, and anything deemed not absolutely of need, they are forgoing those purchases," said Ken Perkins, president of Retail Metrics.

Overall sales at stores open at least a year rose 1.6 percent in August, better than the 1 percent increase predicted by analysts, but still weaker than 3.1 percent a year before, according to Thomson Reuters Estimates.

Wal-Mart shares closed little changed after rising as much as 2 percent, but retail stocks slumped overall. The Standard & Poor's Retail Index .RLX fell 3.1 percent as new government data sparked concern about the labor market and corporate profits.

Perkins said August sales offered little encouragement to retailers about the all-important holiday season. The pressures facing consumers, like rising food costs and tighter credit, are not likely to change before mid-November.

"These results are sort of mapping out more of what we're going to see during the holiday shopping season," he said.

Industry forecasters are cautious about the holiday season in the wake of lighter back-to-school sales.

The International Council of Shopping Centers expects 2008 holiday sales to be their weakest since 2001 -- a rise of 3.6 percent versus 4.2 percent last year.

DISCOUNTERS BENEFIT

Wal-Mart, the world's biggest retailer, posted a same-store sales increase of 3 percent, beating analysts' expectations of a 1.6 percent rise.

"For Wal-Mart, the value message is really timely and is resonating," said Sarah Henry, an analyst with MFC Global Investment Management.

Wal-Mart cited strong sales of groceries, medicines and other household goods, and gave an optimistic September forecast, helped by back-to-school. Consumers were also buying popular electronics such as flat-screen TVs and cell phones, the company indicated.

"The worldwide consumer is pulling back in some areas, but in those areas where they have interest, they are willing to spend," Chief Executive Lee Scott told a Goldman Sachs retail conference.

He added Wal-Mart expected the 2009 economy to be similar to conditions this year. "For the most part we see next year as a challenging year but one in which we can do well."