Largest U.S. Retailers Report Disappointing Sales in August

The nation’s largest merchants, hoping to ring up big sales during the crucial back-to-school season, got taken to school instead.

Retailers on Thursday reported disappointing sales in August, the third straight month of sluggish business, as high gasoline prices and job insecurity cut into family spending, analysts said.

Overall, retail sales rose just 1.1% at stores open at least a year, the smallest gain in a year and a half, according to the International Council of Shopping Centers. That was sharply below some expectations of a 2.2% gain.

“Not a good August, and to some extent, an uncomfortable picture when you put this in the context of broader economic trends,” said Michael Niemira, the ICSC’s chief economist. “That’s what makes us worry.”

The disappointing sales came amid a week of gloomy economic reports: shrinking consumer confidence, slower productivity growth and a rise in weekly claims for unemployment benefits.

August typically signals the start of back-to-school shopping and is the second-most-important month of the year for merchants, after December. However, schools across the country increasingly are starting on dissimilar dates. A later-than-usual Labor Day didn’t help.

“The back-to-school shopping season is increasingly ambiguous,” said Ellen Tolley, spokeswoman for the National Retail Federation, a Washington trade group. “It’s as if Christmas fell on a different day throughout the country.”

Many parents are waiting to make major purchases, choosing instead to buy one pair of shoes or one nice outfit for the first day, she said. Many merchants are hoping that families will continue their back-to-school shopping this month.

Industry bellwether Wal-Mart Stores Inc. posted its weakest performance in more than three years with a 0.5% gain, compared with predictions of a 1.8% increase. Hurricane Charley, which swept through Florida last month, contributed to the lower results, Wal-Mart said.

Given the sluggish sales, Wal-Mart said its third-quarter profit from continuing operations would be at the low end of its estimate of 52 cents to 54 cents a share.

Customers at discounters like Wal-Mart are more vulnerable to high gasoline prices, analysts said.

“The American consumer is being bankrupted at the gas pump,” said Kurt Barnard, head of Barnard Retail Consulting Group in New Jersey. “There is also a pessimism across the nation that jobs are harder to get, easier to lose.”

San Francisco-based Gap Inc., the nation’s largest apparel retailer and parent of Gap, Banana Republic and Old Navy, said same-store sales fell 1%, beating analysts’ expectations of a 2.5% decline. Gap shares rose $1.08 to $20.08 on the New York Stock Exchange.

Apparel was the only category in the retail report to exceed expectations, posting a modest 0.8% gain in same-store sales versus the flat results that were expected, the ICSC found. Same-store sales, or sales at stores open at least a year, are a key measure of a retailer’s health because the figure excludes new and closed stores, which can skew results.

Los Angeles jeans maker Guess Inc., one of the strongest performers this year, reported a 5.9% gain, but that was less than the 7.4% analysts expected. Still, the stock rose 90 cents to $15.89 on the NYSE.

Wet Seal Inc., the young- women’s chain based in Foothill Ranch, saw sales drop 14.8%, but that was slightly less than what Wall Street was expecting. Wet Seal shares rose 6 cents to $1.11 on Nasdaq.

City of Industry-based Hot Topic Inc., another teen retailer, said comparable store sales fell 8.7%, but its stock added 83 cents to $16.20 on Nasdaq.

Major discount stores posted their worst performance in recent memory, analysts said, with 10 of 11 discounters missing their numbers. Only Target Corp. beat expectations, posting a 1.8% gain, compared with a 1.2% rise analysts were looking for. Target shares rose 77 cents to $45.73 on the NYSE.

As in previous months, higher-end stores were the standouts. Nordstrom Inc. and Neiman Marcus Group Inc. beat analysts’ sales estimates and their stocks rose. Nordstrom added $1.16 to $38.58 and Neiman Marcus gained $1.81 to $54.50, both on the NYSE.

Despite the overall sluggish numbers, many retail stocks rose because Wall Street had expected even worse results, analysts said.

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Mixed bag

Percentage change in August from a year earlier in sales at stores open at least one year

Company % change Nordstrom +7.2% Guess +5.9 J.C. Penney +3.8 Pacific Sunwear +3.7 Target +1.8 Gottschalks +0.5 Wal-Mart +0.5 Gap Ð1.0 Limited Brands Ð2.0 Federated Ð2.4 Sears Ð6.1 May Ð6.7 Ross Ð8.0 Hot Topic Ð8.7 Wet Seal Ð14.8

Sources: Times wire services, company reports