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Big Retail Month Boosts Forecasts

Warmer weather and bargains lead to surprise revenue in July. Some firms expect higher quarterly earnings.

August 08, 2003|From Reuters

Warm weather and huge clearance sales helped major retailers post better-than-expected July sales Thursday, prompting Wal-Mart Stores Inc., Gap Inc. and others to raise their quarterly earnings forecasts.

Department stores and specialty chains, including Kohl's Corp., J.C. Penney Co. and Limited Brands Inc., reported strong sales growth, helping to make up for a disappointing June and bolstering hopes for solid back-to-school demand in August.

Wal-Mart, Gap, electronics retailer Best Buy Co., department store operator Federated Department Stores Inc. and clothing store companies AnnTaylor Stores Corp. and Abercrombie & Fitch Co. all boosted quarterly earnings forecasts.

Wal-Mart and many other retailers operate on a fiscal year ending in January and are slated to release second-quarter earnings next week.

The Bank of Tokyo-Mitsubishi said July sales at stores open at least a year -- a key retail measure -- rose 4.3%, above its expectations for a 3% increase and the strongest gain since June 2002.

Michael Niemira, the bank's retail analyst, said this July was the 12th warmest on record in 109 years, which helped lift sales for the month. He forecast August same-store sales growth of 3% to 4%.

July is typically a month of clearance sales as retailers make room for back-to-school goods. This year, the markdowns were even more pronounced as stores grappled with weak consumer confidence and unemployment near a nine-year high.

Many consumers have put off all but essential purchases, forcing retailers to cut prices, but an overdue stretch of warmer weather prompted many consumers to snap up bargain-priced swimsuits and shorts in July.

Retailers are now hoping the $400-per-child tax credits being sent to more than 25 million families will help drive back-to-school sales.

In one promising sign for back-to-school demand, leading department store chain Sears, Roebuck & Co. said it expects August same-store sales to be flat with a year ago. That would break a string of 23 months of declines.

However, Wal-Mart damped hopes that consumers quickly would spend all the tax-credit money. Wal-Mart said consumers on average spent just 15% of the checks cashed there, down from 25% during the last round of tax cuts.

"Given the economic background and given the state of the labor market at this point, there is no question that for a lot of people, receiving the check means salting it away, not spending it," said Kurt Barnard, head of consulting firm Retail Forecasting Group.

"People are very much concerned about the possibility of a pink slip on its way to them," he said. "I do not believe that the tax-rebate checks are going to make that much of a difference for retail sales."

Wal-Mart, the world's biggest company by revenue, posted a 4.6% jump in July same-store sales, above its forecast of a 2% to 4% increase. That broke an eight-month streak of sales at the low end of, or below, its expectations.

In reporting its unexpectedly strong sales for July, Wal-Mart also raised its earnings outlook for its just-ended fiscal second quarter to 52 cents a share. That was a penny better than analysts had expected, according to Reuters Research, a unit of Reuters Group.

San Francisco-based Gap said it expected profit in its second quarter ended Aug. 2 to increase to as much as 22 cents a share, up from 6 cents a year earlier, after July same-store sales jumped 9%.

Anaheim-based Pacific Sunwear of California Inc., a teen clothing retailer, boosted its profit forecast after sales climbed 15%, almost doubling the analyst estimate of 8.3%.

Last month, several retailers, including J.C. Penney and Kohl's, lowered their quarterly earnings forecasts after disappointing sales.

But both J.C. Penney and Kohl's reported solid gains for July, and Kohl's said it now expected second-quarter results to be at the high end of its lowered forecast.

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