Sagging Spirits Up at Major Retail Chains

Adding to evidence that retailing is finally starting to rebound, several major chains Tuesday posted better-than-expected earnings as apparel sales grew industrywide.

Kmart Corp. and Dayton Hudson Corp. were the latest chains to show improvement following signs of an industry rebound last month.

A number of retailers have reported gains in same-store sales (sales at stores open at least a year). May Department Stores, Sears, Roebuck & Co. and several specialty chains reported strong sales gains in April. Stores are finally starting to reap the benefits of cost cutting and increased consumer confidence in the economy.

Such gains are welcome relief from a dismal winter. Despite heavy price cutting, the industry posted the lowest December sales increases in a decade. Specialty apparel chains have suffered the most, because of lackluster demand for clothing.

Kmart, which hired a new chief executive amid mounting losses in 1995, had an operating loss of $38 million for the quarter ended May 1, compared with a loss of $109 million during the same period a year ago.

Kmart’s operating loss was 20% smaller than analysts expected. Its net loss for the quarter--including $61 million in expenses related to the sale of drugstore properties--was $99 million.

Sales were among the brighter spots in the discounter’s financial results. Same-store sales rose a healthy 4.5%.

At Dayton Hudson, which has been facing shareholder pressure because its Mervyn’s division has been struggling, earnings were also 20% better than analysts expected. For the quarter ended May 6, it had net income of $41 million, much of it due to the strong performance of its Target discount chain of 688 stores.

However, a rebound at Mervyn’s contributed to the company’s resurgence. Reversing years of declines, same-store sales rose 3% during the quarter.

Nearly half of Mervyn’s stores are in California, and the sales increase is another sign of improvement in the state’s retail sector, analysts said.

“Southern California has lagged the most, but that region is finally turning the corner,” said Kurt Barnard, a New Jersey-based retail economist. “We’re seeing sales increases because there has been job growth in the state. There is a lot of enthusiasm about the prospects for Southern California.”

Retail construction projects and store expansions in the Southland are signs that retailers are increasingly confident in the region, said Jack Kyser, chief economist at the Economic Development Corp. of Los Angeles County. One of the largest retail construction projects in the nation, the Ontario Mills Mall, is underway in the Inland Empire, he noted.

Malls and shopping centers are also under construction in Pasadena, Long Beach, Downey, Carson, Santa Clarita and Los Angeles.

“The momentum is quite positive,” Kyser said.

That momentum is being fueled in large part by consumers who are satisfying their pent-up demand for new clothing. Apparel is boosting retail sales in Southern California and nationwide, said Ira Kalish, an economist at the Los Angeles offices of Management Horizons, the retail consulting arm of Price Waterhouse.

U.S. retail sales were 6.1% higher during the first three weeks of May compared with the same period last month, according to the Johnson Redbook Service’s weekly retail sales report.

Sales for the month to date ended May 18 gained because of higher sales of adult apparel, especially in department stores, and of intimate apparel and children’s wear in both department and discount stores, said Redbook, a unit of the investment firm Lynch, Jones & Ryan. The results are adjusted for seasonal changes.

The demand for clothing will continue in May and June, many analysts say. Based on current sales trends, the Bank of Tokyo-Mitsubishi/Shroder Wertheim weekly sales report projected sales increases at many major retail companies for May.

The report said sales at May Department Stores--operator of Robinsons-May and other chains--will rise 6% compared with the same month a year ago. Sales at Federated Department Stores--operator of Macy’s and other stores--will rise 3% for the month, and J.C. Penney sales will climb 1% in May, the report said.

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An investor shopping spree is expected. D3