News > Jobs & Economy
    SAVE   |   EMAIL   |   PRINT   |   RSS  
Wal-Mart gains from summer, others don't
Heat boosts seasonal merchandise sales at Wal-Mart, but teen and luxury retailers lose momentum.
August 4, 2005: 9:24 AM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - Scorching temperatures sent consumers scrambling to buy air conditioners, fans, summer clothes and plenty of groceries, all of which boosted sales at Wal-Mart last month.

But the hot weather may have also hurt sales at some specialty stores, analysts said.

Extreme heat in much of the U.S. cut both ways," said Ken Perkins, retail analyst and president of Retail Metrics.

It fueled sales of the seasonal summer merchandise such as fans, pool accessories and beverages but "it may have also dampened sales of back-to-school merchandise as the heat may have kept shoppers from venturing out to the malls," he said.

Bentonville, Ark.-based Wal-Mart (Research), the No. 1 retailer, logged same-store sales -- or sales at its stores open at least a year -- that rose 4.4 percent at its U.S. stores, on the back of strong grocery sales.

The result was also at the top-end of the company's earlier forecast of a 3 to 5 percent gain for the month.

Wal-Mart said total sales for the five weeks ended July 29 rose 10.7 percent to $22.8 billion. For August, the company expects same-store sales to rise between three and five percent.

Said Perkins, "This marks the second-consecutive month that Wal-Mart has come in at the high end of plan and suggests that lower-income consumers have been able to shake off record high gas prices."

Retail analysts have paid closed attention to Wal-Mart's sales trends as a gauge of how consumers are responding to fluctuating gas prices since the cost of gas tends to affect the discretionary spending of lower-income shoppers -- Wal-Mart's key clientele -- more than other income strata.

Besides a little help from Mother Nature, some industry watchers attributed Wal-Mart's continued recovery in July to better controls at the store level and an improved merchandise mix.

"Our recent visits to some stores indicate better controls over displays, clutter, and shelf appearance, necessary steps to stabilize store aesthetics in support of their apparel initiatives," said Richard Hastings, senior retail analyst with Bernard Sands, wrote in a note Thursday morning.

Wal-Mart is scheduled to report its second-quarter earnings Aug. 16.

First Call forecasts that other major chains will see a collective 3.8 percent same-store sales gain in July, compared to a three percent gain a year ago.

Target (Research), the No. 2 discounter behind Wal-Mart, posted a 5.5 percent sales increase for the month and said it expects second-quarter profit of 58 cents a share "or more" when the company reports its quarterly results next Thursday. Analysts on average expect the retailer to earn 59 cents a share, according to First Call.

Among the specialty stores, July proved to be a mixed bag for the teen apparel names. Those that hit back-to-school fashion trends on the head emerged as winners. American Eagle Outfitters (Research) saw sales jump 17.1 percent , spurred by its denim offerings. Sales at Wet Seal spiked a whopping 50.9 percent while Pacific Sunwear (Research) logged a four percent sales gain in July.

Said Hastings, "Wet Seal is a turnaround situation that has been helped by strong industry vendor credit support and solid communications with their vendors."

However, not everyone came out ahead. Hot Topic's (Research) sales fell five percent, short of Wall Street's expectations, while sales at Aeropostale (Research) also saw a surprise 4.2 percent dip.

Limited Stores (Research), owner of the Victoria's Secret, Bath & Body Works and Express chains, posted a slim sales increase of one percent.

The red-hot luxury sellers also stumbled last month. Nordstrom (Research) posted a sales gain of 3.6 percent, missing analysts' forecast for a 5.4 percent gain. Saks said companywide sales rose just 0.3 percent in July.

Could July's so-so performance be the first real indication that summer's spending fury is cooling off as retailers enter the second-half period which includes the crucial holiday shopping period?

Perkins said he believes that there are some dark clouds on the horizon for consumer spending and retail same-store sales growth.

"Low end consumers appear to have amazingly shrugged off gas prices that averaged over $2.30 a gallon in July, much as they did in June," said Perkins. " Prices at the pump were six percent higher than they were in June and 19 percent above year-ago levels. At some point, however, lower-income consumers are likely to feel this squeeze in the form of lower discretionary expenditures."

According to the Commerce Department, June's spending increase was the biggest monthly rise, adjusted for inflation, since July of last year.

"Meanwhile, the personal savings rate fell to zero percent, the second lowest level since the great depression," he added. "This begs the question as to whether consumers are becoming tapped out and whether they can continue their vigorous spending throughout the second half."  Top of page


American Eagle Outfitters
Manage alerts | What is this?