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Back-to-school disappoints retailers
Wal-Mart August results sluggish, guides lower on earnings; department stores suffer.
September 2, 2004: 7:30 PM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - Retailers on Thursday reported sluggish sales for August, as store chains blamed adverse weather and a late Labor Day for hurting back-to-school business.

"There were a number of factors that dampened consumer spending," according to Ken Perkins, retail analyst with Retail Metrics, a Boston-based independent research company.

"Consumers really felt the pinch of higher gas prices and job growth is stagnant," Perkins said.

He noted that Labor Day falling later this year hurt not just Wal-Mart but retailers nationwide, shaving as much 2 percentage points from sales at stores open at least a year, an industry measure known as same-store sales.

Wal-Mart, the world's largest retailer, reported August same-store sales rose just 0.5 percent for period ended Aug. 27, near the bottom of its forecasts. The retailer blamed Hurricane Charley, which caused store closings in Florida, and a late Labor Day that deterred back-to-school shopping.

The discounter also said it now expects third-quarter earnings to be at the low end of its forecast of 52 to 54 cents a share. Analysts were expecting 53 cents a share on average, according to First Call.

Total sales including new stores rose 8.8 percent to $21.2 billion from $19.5 billion a year earlier.

For September, Wal-Mart (WMT: Research, Estimates) sees sales at stores open at least a year to be up in the 2 to 4 percent range.

Target Corp. (TGT: Research, Estimates), the No. 2 discounter after Wal-Mart, fared a bit better. Same-store sales rose 1.8 percent.

But wholesale club Costco (COST: Research, Estimates) posted a weaker-than-expected rise in sales, up 4 percent versus forecasts for a 7.3 percent gain, according to First Call. The retailer said the late Labor Day weekend delayed demand for office supplies, toys and other goods.

August was also a dismal month for department store chains, with the exception of the high-end merchants.

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Sales at Federated Department Stores (FD: Research, Estimates) declined 2.4 percent, while Sears (S: Research, Estimates) suffered a 6.1 percent drop in same-store sales last month on the back of soft demand for school-related merchandise.

"We anticipated August would be a tough comparison for Sears from 2003, in part because of the absence of tax refunds this year, and the strong performance of our home appliance and lawn and garden businesses at this time last year," said Sears chairman and CEO Alan Lacy, said in a statement.

"While we experienced softer than expected back-to-school sales, we continue to look forward to the fall and holiday seasons," he added.

Industry watchers say the back-to-school period has become the second most important selling season for retailers after Christmas. It's also a time when retailers hope to clear much of the summer inventory to make space for fall merchandise.

Consumer spending last year was buoyed by the child tax credits, which helped retailers across-the-board boost sales numbers leading into the holidays. Retailers lack that catalyst this year, but Perkins said September could just show a reversal of fortunes.

Retail sales

"Retailers posted huge results at this time last year. So they are up against tougher comparisons. But this isn't necessarily a harbinger of trouble over the holidays, not if retailers get through September in good shape."

Among apparel merchants, teen retailers American Eagle Outfitters (AEOS: Research, Estimates) bucked the summer doldrums to report a stunning 23.9 percent jump in its same-store sales in August. And another youth-oriented clothing chain Aeropostale (ARO: Research, Estimates) said its sales rose 6.2 percent.

However, not everyone was as lucky. Limited Brands (LTD: Research, Estimates), owner of Victoria's Secret and Bath & Body Works chains, posted a 2 percent decline in same-store sales.  Top of page

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