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Discounters still bright spot for weak retail

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.

A customer shops at a Wal-Mart Supercenter in Rogers, Arkansas June 5, 2008. REUTERS/Jessica Rinaldi

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.

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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.”

Other low-price chains also fared well. Family Dollar Stores Inc FDO.N posted a 3.6 percent gain in same-store sales, compared with expectations for a 3 percent increase. BJ's Wholesale Club Inc's BJ.N same-store sales rose 15.4 percent, topping the target for a 14.1 pct rise.

"We're a treasure hunt to our customers," Dollar Tree Inc DLTR.O Chief Executive Bob Sasser said.

One surprise among off-price retailers was TJX Cos Inc TJX.N, which had flat same-store sales in August, below analysts' and company expectations. Foreign currency exchange rates hurt rather than helped sales as anticipated.

TJX shares closed down 7.4 percent to $34.07 on the New York Stock Exchange.

RIGHT MIX

Back-to-school, the second most-important season for U.S. retailers after the holiday season, boosted some apparel chains as more schools opened later and shoppers held off buying until the end of the period.

At Aeropostale, same-store sales rose 13 percent, topping estimates of 6.9 percent, as teens bought knits and denim. Rivals Hot Topic Inc HOTT.O and American Eagle Outfitters Inc AEO.N had smaller-than-expected declines of 2.7 percent and 5 percent, respectively.

Higher-priced teen chain Abercrombie & Fitch Co ANF.N stumbled as same-store sales fell 11 percent, worse than the 7.9 percent decline analysts expected.

“Getting fashion right would have been the difference between doing well and doing poorly this month,” MFC Global’s Henry said, referring to the teen sector.

The luxury sector showed more weakness as Saks Inc SKS.N and Nordstrom Inc JWN.N posting worse-than-expected sales. Henry said both companies are more exposed to financial market stress.

Nordstrom sales fell 7.9 percent, worse than the 7.1 percent drop analysts expected, while Saks declined 5.9 percent, compared with expectations of a 4.7 percent dip.

Aeropostale shares fell 2.4 percent to $35.09, while Hot Topic rose 4.6 percent, and American Eagle gained 3 percent.

Saks was down 0.53 percent to $11.27, and Nordstrom gave up 4 percent to $31.99.

Additional reporting by Martinne Geller and Aarthi Sivaraman in New York, Brad Dorfman and Ben Klayman in Chicago and Alexandria Sage in San Francisco, editing by Dave Zimmerman, Gerald E. McCormick and Jeffrey Benkoe

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