Retailers post tepid June, start to discount more

NEW YORK (AP) - Americans didn't go on many shopping sprees in
June, resulting in sluggish sales for many retailers. It often took
deeply discounted clothing to get shoppers to spend - and then only
if they needed it.

The lackluster performance, being compared with a weak June
2009, is raising concerns about the back-to-school shopping season
and the health of the economic recovery.

After ramping up spending surprisingly in the first quarter,
shoppers have hunkered down since April. Some worry they'll
continue to be tight-fisted through the holiday shopping season.

"My sense is that the consumer is very cautious at this stage
given the state of the labor market, the housing market," said Ken
Perkins, president of research firm RetailMetrics. "June sales are
going to reflect that caution." A sluggish June sets up a
"disappointing back-to-school season," he said. "I think
(back-to-school) is going to be very promotional."

As merchants reported their results Thursday, Costco Wholesale
Corp. posted a solid revenue gain, but it was fueled by its
international business. Target Corp. posted a modest gain that was
below Wall Street expectations. Many teen merchants including
American Eagle Outfitters Inc., The Buckle Inc., Hot Topic Inc. and
The Wet Seal Inc. reported decreases in revenue.

Among the bright spots were Limited Brands Inc., which owns
Victoria's Secret and Bath & Body Works, and Macy's Inc., both of
which reported solid gains that were better than expected.

The figures are based on revenue at stores open at least a year
and are a key indicator of retailers' health.

June is a time when stores clear out summer goods to make room
for back-to-school merchandise. But analysts say discounting was
heavier than expected as stores had to work hard to pull in
shoppers continuing to grapple with a deluge of financial issues.
Such deeper-than-planned discounting resulted some stores,
including American Eagle Outfitters and Wet Seal, trimming profit
forecasts Thursday.

Clothing stores accelerated discounting toward the end of June
after not getting enough business, BMO Capital Markets analyst John
Morris said. He estimated that volume and level of discounts at the
mall-based apparel chains he tracks was even with a year ago even
as stores carry less inventory than a year ago. Discounting was
down 5 percent in May from a year earlier, after being down 10
percent from February through April, Morris said.

Uncertainty is growing as evidence mounts - from disappointing
housing data to sluggish hiring - that the recovery is stalling
heading into the second half of 2010. And that is when the benefits
of most of the government's stimulus spending will begin to fade.

Consumers also saw their retirement funds erode further as the
Dow Jones Industrial Average has declined 13 percent from its late
April peak.

Such economic concerns drove down consumer confidence by 10
points in June, reversing three straight gains, according to
private research group The Conference Board.

The Labor Department reported Thursday that new claims for
unemployment benefits dropped sharply last week, but they have yet
to reach levels that most economists say would point to robust job
creation.

Against this environment,even discounters and wholesale club
operators are fighting for every dollar from consumers.

Costco said Thursday that revenue in stores open at least one
year rose 4 percent in June, boosted by international results.
Analysts surveyed by Thomson Reuters, on average, expected a 4.2
percent gain.

Target posted a 1.7 percent gain, short of the 2.7 percent rise
that analysts had expected.

Clothing, food, and health and beauty products were strong
sellers. But electronics, video games, music and movies were
weaker. The Minneapolis company expects July revenue in stores open
at least one year to rise in the low single digits.

Wal-Mart Stores Inc., the world's largest retailer, stopped
reporting monthly results last year.

Among department stores, Macy's enjoyed a 6.5 percent gain in
June, topping analysts' estimates for a 6.1 percent increase.

Gap Inc., dragged down by weak business at its namesake clothing
chain, was flat with last June, when it suffered a 10 percent drop.

"June was a difficult month with lighter traffic than we
anticipated," Sabrina Simmons, Gap's chief financial officer, said
in a statement.

Limited Brands, which operates Victoria's Secret and Bath and
Body Works, said it posted a 6 percent gain in June, better than
the 3.2 percent growth forecast.

Among teen chains, Wet Seal had a 3.6 percent drop in June, and
the teen clothing seller said it now expects second-quarter results
at the low end of its previous guidance. Analysts had expected a
smaller 1.8 percent drop. The Buckle suffered a 7.3 percent drop in
June, much worse than the slight rise analysts expected.

But preppy teen clothing company Abercrombie & Fitch Co., which
has been struggling, posted a 9 percent increase, sailing past
analysts' expectations of 2.8 percent.

(Copyright 2010 by The Associated Press. All Rights Reserved.)


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