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Retailers Rally Even as Results Disappoint

Investors renew their hopes for a second-half economic turnaround.
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Consumers continued to keep their wallets bolted shut in June, the nation's retailers said Thursday.

As same-store sales reports trickled in from top retailers Thursday morning, the picture that emerged confirmed what most observers had expected: The consumer economy continues to deteriorate. That marks a sharp reversal from the first-half trend, which saw strong consumer spending offset a weakening manufacturing sector.

Yet investors seemed to take a different view, bidding up most retail stocks Thursday on hopes that sales may have bottomed.

Not Expecting Much

While 11 of 24 companies tracked by research firm

First Call/Thomson Financial

beat estimates, don't be fooled. Estimates were extremely low, and most companies that beat them did so by only the slightest of margins.

Gap

(GPS) - Get Gap, Inc. (GPS) Report

, for example, reported a 7% decline in same-store sales, which gauge activity in shops open at least a year, compared with expectations for a 7.6% decline. Even this slightest bit of good news -- if you can call a 7% fall in sales good news -- was enough for investors to bid up the stock 99 cents, or 4%, to trade at $26.89.

Indeed, most apparel chains saw their sales fall, as they felt the effects of a slowing economy and an industrywide run of bad taste.

Even highflier

Kohl's

(KSS) - Get Kohl's Corporation (KSS) Report

, which in the past seemed to always blow by estimates, reported only a 1.7% increase in same-store sales, compared with a consensus estimate of a 4% increase. Shares hardly budged, though, off 19 cents lately at $58.15.

Dog Days

Women's apparel chain

Ann Taylor

(ANN)

took the prize for the weakest month. It gave investors a double jolt of bad news Thursday: It trimmed its profit estimates for the second quarter while announcing that sales in June declined more than twice as much as Wall Street expected.

To investors, though, this was reason enough to buy the stock, perhaps because many believe a rebound is forthcoming. Hopes of a turnaround at the company were ignited in May when Ann Taylor

hired a new top merchant for its namesake division. Shares rocketed $1.36, or 4%, to trade at $32.76.

Comparable-store sales declined 12.3% from June of last year, against a 6.1% decline expected by analysts polled by

First Call/Thomson Financial

. As a result, it now expects second-quarter earnings of 20 cents to 24 cents a share, compared with expectations of 28 cents a share.

For the full year, the company forecasts earnings of $2.16 to $2.20, compared with prior guidance of $2.24 to $2.28. However, Wall Street never bought this forecast, and its consensus estimate of $2.13 is still lower than the company's revised guidance.

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Happy Days

Discounters largely fared better, with

Wal-Mart

(WMT) - Get Walmart Inc. Report

,

Target

(TGT) - Get Target Corporation Report

and

Kmart

(KM)

all reporting gains in same-store sales. Shares in these three also posted strong gains. Wal-Mart was up $1.70 at $50.55; Kmart rose 27 cents to trade at $10.75, and Target gained $1.60 to trade at $34.99.

But clothing discounter

TJX

(TJX) - Get TJX Companies Inc Report

, which operates the

TJ Maxx

chain, reported dismal sales and trimmed its quarterly profit guidance to 40 cents a share, or 2 cents lower than the Wall Street consensus. Yet it saw its shares rise nearly 5%, or $1.52, to $32.02.

Even department stores, which have fallen from favor among value-oriented consumers who have come to prefer stores like Wal-Mart and Target, shared in the frenzy Thursday.

J.C. Penney

(JCP) - Get J. C. Penney Company, Inc. Report

shares soared $2.17, or 9%, to$26.80 after the company reported that sales rose 3.8% in June, compared with an expected 1.6% gain.

And

Sears

(S) - Get SENTINELONE, INC. Report

, whose same-store sales declined a less-than-expected 0.5%, saw its shares rise $2.38, or 5.7%, to trade at $44. The headlines on the newswires declared the company will beat earnings estimates, but this doesn't tell the whole story. All the company said was that it expects earnings to be 96 cents a share in the second quarter, in line with its prior guidance. Wall Street, however, never believed that guidance, as its consensus estimate was for earnings of 92 cents a share.

Never mind, though, as investors latched on to the slightest rays of good news Thursday.