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Retailers' results mixed
August 9, 2001: 3:17 p.m. ET

Discount chain sales fare better than department, specialty stores in July
By Staff Writer John Chartier
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NEW YORK (CNNfn) - The nation's biggest retailers reported mixed sales in July as the slowing economy pushed more consumers away from luxury and department stores into bargain-priced discount chains.

Investors mostly shrugged off the results as well as the government's latest report on first-time jobless claims in early trading Thursday.

"July was a washout, a bust, whichever way you want to call it, unless you were a discount retailer," said Kurt Barnard, president of Barnard's Retail Trend Report in Upper Montclair, N.J.

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graphicCNNfn's Jennifer Westhoven takes a look July sales.
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Merchants have been struggling to shore up sales in the last year as mounting layoffs, higher energy prices and a volatile stock market have prompted consumers to limit purchases to necessities such as food and clothing.

The effects of tax rebate checks that began arriving in mailboxes as part of President Bush's tax relief package were difficult to gauge since they came late month. Retailers are hoping rebate checks and better back-to-school sales will help improve August sales.

And consumers are turning to discount chains like Wal-Mart, Kmart and Target for those items instead of high-end luxury retailers and specialty boutiques, which often are perceived as having higher prices.

"I think what you're seeing is they're continuing to steal share. They're continuing to sell better food, they're going into pharmacy and increasing apparel and home furnishings," Bear Stearns retail analyst Deborah Weinswig told CNNfn's Market Call Thursday. (WAV 289KB) (AIFF 289KB)

Home sales also remain robust as consumers continue to obtain mortgages and furnish those new homes, helping to stave off a recession.

Consumers are still hunting for bargains amid layoff fears (CNN/File)
Nevertheless, continued economic weakness was reflected Wednesday in the Federal Reserve's latest "beige book" report, a general statement on the overall condition of the economy. Wednesday's report indicated that U.S. economic activity remained slow in July as the manufacturing sector continued to shed jobs.

Fed Chairman Alan Greenspan has kept an eye on consumer spending, which accounts for two-thirds of the economy, as he and the other Fed members consider another interest rate cut when they next meet Aug. 21. Analysts widely expect the Fed to cut rates another quarter of a point.

The Fed has cut interest rates six times so far this year in hopes of giving the economy a boost by making it less expensive for businesses and consumers to borrow money.

Yet the monthly sales results were mixed at the stores.

Dow component Wal-Mart Stores Inc. (WMT: down $0.45 to $54.08, Research, Estimates) reported a 6 percent increase in sales at stores open at least a year, greater than the 5.3 percent gain it posted a year earlier, as price-conscious consumers turned to the world's biggest retailer and other discount chains amid the slowing economy.

The company's total sales in the month increased 13.9 percent to $16 billion from $14 billion.

Meanwhile, Plano, Texas-based J.C. Penney (JCP: down $0.69 to $26.52, Research, Estimates) reported a 2.2 percent rise in same-store sales in July. Although department stores have been struggling in the slowing economy with the shift to discount stores, Penney is in the midst of a turnaround in which CEO Allen Questrom has improved the product mix, cleaned up the stores and shuttered underperforming stores.

Penney said the July sales uptick reflects planned markdowns and promotions.

The retailer also said it anticipates second-quarter earnings, which it reports Aug. 14, to come in slightly better than Wall Street estimates.

The company also said same-store sales increased 10 percent at its Eckerd drugstore chain, which also has undergone massive restructuring under its new CEO Wayne Harris.

Target Corp. (TGT: up $0.16 to $38.16, Research, Estimates) said same-stores sales increased 4.6 percent in July with total sales increasing 11.7 percent to $2.7 billion from $2.5 billion a year earlier.

Minneapolis-based Target is considered by many to be an "upscale" discount chain which, like Wal-Mart, has benefited from consumers switching from high-end chains to more bargain-priced stores. However, the company's Marshall Field department stores logged an 8.8 percent drop in same-store sales.

Kmart Corp. (KM: down $0.50 to $12.54, Research, Estimates) reported a 3.4 percent increase in same-store sales in July, citing the revival of its BlueLight Special, which has helped drive sales. The Troy, Mich.-based retailer is in the midst of a turnaround under CEO Chuck Conaway in which the company is expanding its offering of basics such as food and consumables and by focusing on private-label brands such as Route 66 apparel and its Martha Stewart line of home products.

Federated Department Stores Inc. (FD: down $0.59 to $37.41, Research, Estimates), owner of Macy's, Bloomingdale's and other department stores, reported a 4.2 percent decline in same-store sales, partly reflecting a restructuring of its Fingerhut catalog unit and the shuttering of its Stern's division.

The Cincinnati-based company also posted a 6.4 percent decline in total store sales to $1 billion from $1.2 billion a year earlier.

Sears Roebuck & Co. (S: down $0.90 to $44.22, Research, Estimates) posted a 3 percent decrease in same-store sales for the month and a 2.5 percent drop in total sales to $2 billion.

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The nation's No. 2 retailer, based in Hoffman Estates, Ill., blamed the economy, saying strong sales increases in its appliances unit were more than offset by declines in most other categories. Last month, the company surprised investors by announcing plans to abandon its cosmetics business.

Analysts widely expect Sears to announce a major restructuring in the fall, including a shift in its business plan, since new CEO Alan Lacy said publicly that all units are being reviewed closely.

Gap Inc. (GPS: down $1.55 to $25.62, Research, Estimates), owner of Gap, Banana Republic and Old Navy stores, reported a huge 12 percent drop in same-store sales and said it has slashed 1,300 jobs, or 10 percent of its workforce, through a combination of layoffs and eliminating unfilled positions. About 800 employees were affected by the cuts, which are expected to save $65 million to $70 million a year.

The San Francisco-based retailer said it anticipates a $30 million charge in the second quarter related to costs from the job cuts.

And Dillard's (DDS: up $1.36 to $16.50, Research, Estimates) department stores said sales increased 7 percent both on a same-store basis and overall in July. However, the company credited a sales tax holiday in Texas, Florida and South Carolina for helping drive those increases.

Specialty stores get whacked

Meanwhile specialty retailers took the heaviest hits, with upscale Sharper Image Inc. (SHRP: down $0.03 to $8.94, Research, Estimates) logging a whopping 26 percent drop in July same-store sales compared with a 46 percent increase a year earlier.

The company blamed high sales of Razor scooters a year ago, without which the company would have posted a same-stores sales gain for the period.

Abercrombie & Fitch (ANF: down $6.44 to $29.70, Research, Estimates) posted a 14 percent decline, AnnTaylor Stores (ANN: up $3.03 to $31.70, Research, Estimates) was down 17.4 percent, Children's Place (PLCE: up $2.55 to $25.85, Research, Estimates) slipped 17 percent, and Pacific Sunwear (PSUN: up $0.66 to $18.20, Research, Estimates) fell 5.3 percent.

Venator Group Inc., owner of Foot Locker stores, posted a 7.7 percent increase for July, and apparel chain Bebe Stores saw an 11 percent increase. Talbots Inc. (TLB: up $0.51 to $40.01, Research, Estimates) increased 7.4 percent in the period. graphic


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