Reitmans sales drop on weak economy, bad weather

OTTAWA, Sept 4 (Reuters) - Reitmans Ltd (RET.TO) said on Thursday quarterly sales dropped as bad weather and a weak economy crimped spending at its women's clothing stores, but profit rose on new accounting rules and a stronger Canadian dollar.

Net earnings increased 10 percent to C$35 million, or 50 Canadian cents a share, in the period ended Aug 2, from $32 million, or 44 Canadian cents, in the year-ago quarter.

Operating earnings gained 6.7 percent to C$64 million, reflecting a C$2.7 million gain from a new accounting standard for inventory costs. A stronger Canadian dollar had favorable impact on gross margins.

Revenue fell to C$289.5 million from C$292 million from stores including Reitmans, Smart Set, Thyme Maternity, Penningtons and Addition Elle.

Sales at stores open for at least one year dropped 4.5 percent in the quarter and weakness continued in the first four weeks of August, as same store sales declined 2.3 percent.

Stores were forced to slash prices to sell clothes as customers cut spending and delayed purchases during the cold, wet quarter.

Reitmans opened 10 stores in the period, for a total 970 in operation. An additional 21 stores are scheduled to open this year, 20 stores will be remodeled and six stores will be closed.

Shares dropped 2.5 percent to C$14.86 on the Toronto Stock Exchange on Thursday. So far this year, the stock has lost about 23 percent of its value. ($1=$1.06 Canadian) (Reporting by Susan Taylor; Editing by Frank McGurty)