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Consumer Spending Declines Less Than Analysts Expected

Retail: Waning sales indicate this year's growth won't come close to last year's record pace.

October 06, 2000|ABIGAIL GOLDMAN | TIMES STAFF WRITER

Consumers spent more in September than many on Wall Street predicted, picking up electronics, reduced-price summer clothes and even full-price fall outfits from those retailers who gave them wearable, high-fashion apparel.

"We can summarize September by saying that [spending] continued to weaken, albeit very modestly," said retail analyst Richard Church of Salomon Smith Barney in New York. Consumers also have "definitely become more value conscious."

But at the same time, the waning retail sales of the last several months are unlikely to rebound significantly any time soon, analysts said. Although still predicting a healthy holiday season, retail watchers say there are clear warnings that this year's growth won't come close to last year's record pace.

Even the red-hot discount stores have watched their sales growth slide. Costco Wholesale Corp., as usual, posted among the best September numbers with same-store sales up 7%.

However, one retail analyst noted, that's the lowest number the warehouse club chain has experienced in two years.

Perennial strong sellers Wal-Mart Stores Inc. and Target Corp. also posted positive sales in line with forecasts--but off the incredibly high figures to which they have become accustomed.

Wal-Mart's overall sales in stores open at least a year were up 4.8%, contrasted with last year's 7.6% September gain. Target's sales were up 3.5%, with the company's discount stores up 2.9%; last year's discount stores gain was 8.6%.

For the industry as a whole, chain stores' sales gained 3.9% compared with the same period last year, according to Bank of Tokyo-Mitsubishi. The first eight months of the year had a 4.9% average growth rate; the gain in September 1999 was 6.7%, BTM said. Goldman Sachs tallied its retail composite index up 3.3%, a bit better than the 2.9% analysts there had forecast.

Other than the discount stores, most sectors within the retail industry reported sales that were modestly better than anticipated. Department stores gained a bit, according to Goldman Sachs, with a 1.7% gain rather than the 0.7% Goldman had anticipated.

Even Target Corp.'s department stores, usually in the position of hurting the discount stores' tally, fared better than expected. Mervyn's California saw sales rise 1%, as opposed to Goldman Sachs analysts' forecast of flat sales to small loss; the rest of the company's department stores had a slightly better-than-expected showing.

Specialty apparel, expected to underperform alongside the sector's ailing Gap Inc. stores, gained 1.2% over last year's sales, better than the 2.6% loss Goldman Sachs forecast.

The only sector that did better this September than last was hard good specialty stores; same-store sales were up 7.7%, contrasted with a 5.3% gain in September 1999, according to Goldman Sachs.

Likewise, Sears, Roebuck & Co. gained because of sales of appliances and other durable goods, with a 3% same-store sales gain.

Same-store sales are considered an important measure of a company's overall performance because the figure excludes new and closed stores.

Other strong gainers included Limited Inc., with sales up 10% from last September, with sales at its Express stores up 19%, and Talbots Inc., which gained 24.8% from this time last year.

Two other upside surprises came from retailers that didn't lose as much as Wall Street expected.

Luxury retailers also continued to fare well, with leather goods company Coach Inc.--on its first trading day after separating from Sara Lee Corp.--gaining $4.31 to close at $20.31 on the New York Stock Exchange. The initial public offering raised $118.1 million for the company.

Same-store sales at Neiman Marcus Group rose a whopping 20.5% from last September.

Sales at Gap Inc., which last month warned of sales and earnings problems, fell 8%, as opposed to the 11% to 14% drop Goldman Sachs analysts had predicted. Abercrombie & Fitch sales fell 2%; Goldman Sachs analysts had forecast a 4% drop because of continued weakness in the men's apparel lines.

Two banks downgraded shares in office supply store Officemax and one also downgraded shares of Staples Inc., based on stiff competition and slowing sales and earnings trouble for suppliers such as Kodak, Dell, Xerox and Apple.

A sampling of other retailers' performances:

* Eddie Bauer stores reported a sales loss of 12% from the same period last year.

* Radio Shack gained 16% in same-store sales.

* Kmart Corp., the No. 2 U.S. discount chain behind Wal-Mart, said sales rose 2.4% in September, below its expectations, as markdowns and clearance sales offset full-price selling.

* Kohl's Corp., a chain of department stores that sell brand-name merchandise at low prices, said it had a 9.8% increase in sales, reflecting higher demand for its back-to-school items and early sales of fall merchandise.

* TJX Cos., the third-largest U.S. clothing retailer and operator of the T.J. Maxx and Marshalls chains, had a 4% sales gain in September.

* May Department Stores saw a 0.7% increase in same-store sales.

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