Low prices and good deals helped wary U.S. consumers overcome their growing anxiety about the economy in May, leading to stronger-than-expected sales for top retailers.
Chains that cater to bargain hunters such as discounter Target Corp and low-priced chains TJX Cos Inc and Ross Stores Inc were among the big winners in May, with sales at stores open at least year that beat Wall Street expectations.
Another winner, Macy's Inc, continued to hold sales events and thereby lure shoppers away from rival J.C. Penney Co Inc, which did away with most discounting in February and has seen same-store sales fall sharply since.
Retailers have not had to resort to desperate price slashing as they did at the height of the 2008 financial panic. But shoppers have been swift to punish retailers, like Penney, that pulled back on coupons and discounts.
"They absolutely have to keep up the promotional pace. They don't have to go overboard but it drives traffic and that's what they have to do," said Ken Perkins, analyst with Retail Metrics. "Penney paid a price."
Mid-tier department store Kohl's Corp also lost many shoppers during the holidays after it lowered discounts on many items.
Kohl's has failed to capitalize on Penney's problems and reported a worse-than-expected 4.2 percent drop in same-store sales. It compounded its problems by a lack of inventory that deprived it of sales. Kohl's said that would continue until the start of the back-to-school period in late July.
Kohl's has tried to maintain tighter inventory levels and avoid having to discount unsold merchandise.
Kohl's shares closed down 6.14 percent in afternoon trading.
The Thomson Reuters Same Store Sales index rose 3.9 percent for May for 18 U.S. chains, beating Wall Street forecasts of a 3.6 percent rise but lower than the 5.4 percent gain a year ago.
Still, retailers got a boost from a later Mother's Day -- it fell on May 13, five days later than last year, when some sales got pulled into April -- and from lower gas prices. A later Mother's Day pulls more sales into May and away from April.
The International Council of Shopping Centers expects same-store sales, excluding drugstores, to rise 3.5 percent to 4 percent in June. But Chief Economist Michael Niemira said economic worries would continue to make shoppers cautious.
The Standard & Poor's Retail Index closed down 0.37 percent, while the broader S&P 500 stock index fell 0.23 percent.
WORRIES ABOUT ECONOMY
Analysts said Americans would still seek out low prices this summer, given slumping consumer confidence amid worries about the job market and Europe's debt crisis, and the absence of a major shopping event until the back-to-school period.
A report on Tuesday from industry group the Conference Board showed consumer confidence had fallen in May to its lowest level since the start of the year, marking the third month of declines.
Wealthy shoppers shrugged off concerns about the stock market: May same-store sales at Saks Inc and Nordstrom Inc were higher than expected.
But even the luxury segment is vulnerable if the stock market continues its current dip or if the euro keeps falling against the U.S. dollar and hurts tourism from Europe.
"If the stock markets were to be hit substantially, then we would be concerned," Saks Chief Executive Officer Steve Sadove told shareholders at the retailer's annual meeting on Wednesday.
Target said its comparable sales were up 4.4 percent, and it forecast a low-to-mid-single-digit percentage rise for June.
TJX, owner of the Marshalls and T.J. Maxx chains, said same-store sales were up 8 percent, well above analysts' forecasts. Shares of the company, which sells designer brands at lower prices than department stores, were up 2.8 percent.
Victoria's Secret parent Limited Brands Inc same-store sales rose 6 percent.
Costco Wholesale Corp said its May same-store sales had risen 4 percent, hurt by the strong dollar's impact on overseas sales. Analysts were expecting a 4.3 percent increase.
Meanwhile, a 1 percent decline at Gap Inc's low-price Old Navy chain pulled the whole company's results below expectations despite strong gains at its namesake and Banana Republic chains. Gap shares ended 0.64 percent lower.
Drugstore chains Walgreen Co and Rite Aid Corp report May sales next week.
(Reporting by Phil Wahba in New York; Additional reporting by Dhanya Skariachan in New York and Nivedita Bhattacharjee in Chicago; Editing by Lisa Von Ahn and Andrew Hay)