Retailers Wriggle Over a Low-Set Bar - TheStreet

Retailers Wriggle Over a Low-Set Bar

June wasn't as gloomy as expected, but Wal-Mart provided much of the boost.
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Updated from 9:46 a.m. EDT

Retailers overcame the low bar set for sales in June, eking out a modest performance but falling short of their gains last year.

Major chain stores reported a collective 2.4% increase in same-store sales, or sales at stores open at least a year. That was better than the gain of 1.8% that analysts polled by Thomson Financial expected.

But excluding a better-than-expected showing from industry giant

Wal-Mart

(WMT) - Get Report

, the comparison wasn't as favorable. The same-store sales growth excluding Wal-Mart also was 2.4%, short of analysts' expectation for a 2.6% increase.

That growth marked a slowdown from June 2006, when same-store sales rose a collective 3%, or 4.3% excluding Wal-Mart.

Teen stores performed particularly well, pushing merchandise out the door without having to slash prices too deeply in what is traditionally considered a promotional month for retailers. Department-store operators and apparel sellers, on the other hand, had mixed results.

Of 47 retailers reporting June results, 53% missed analysts' same-store sales expectation, while 44% beat estimates and the remainder matched forecasts, according to Thomson Financial.

Still, shares of retailers, along with the broader market, were jumping after the month turned out to not be a disaster. Wall Street had anticipated a lackluster month as shoppers continue to tighten their purse strings amid the housing slowdown.

While the sales gains were still only modest, they weren't quite as dismal as projected, and many retailers backed their earnings forecasts, suggesting that clearances of summer goods didn't badly hurt margins.

"Although June will likely stand out as one of the worst months, the lesson to remember is that sentiment always gets too negative," analyst Todd Slater of Lazard Capital Markets wrote in a research note.

Slater noted that while June was well below the monthly same-store sales average of 4.5% over the past decade, the results were nonetheless better than expected.

Richard Jaffe, an analyst for Stifel Nicolaus, pointed out that individual companies were following recent trends. Those that have performed well all along posted the strongest numbers in June, while those that have struggled all year recorded declines.

"The good and strong players outperformed and those who are challenged continued to be so," Jaffe says.

For retailers with merchandise that appealed to customers through the spring, it was much easier to sell off their excess inventory in June without a sharp markdown. In contrast, retailers that had trouble selling their merchandise in the months leading up to June had an even harder time getting rid of it even after cutting prices.

"If it didn't sell in its peak, it's probably not going to be desirable in June," Jaffe says.

Wal-Mart benefited from a growth in sales of entertainment-related products such as flat-panel TVs, MP3 players and computers. The discounter posted a 2.5% rise in June same-store sales. That easily topped analysts' forecast for a 0.8% rise, and was above Wal-Mart's own projection for flat to 2% growth.

Sales of home and apparel goods remained weak. The company said it still expects earnings from continuing operations of 75 cents to 79 cents a share for the second quarter, though it noted a "challenging environment" and said consumers are seeing more pressure on discretionary spending. For July, Wal-Mart predicts a 1% to 2% rise in same-store sales.

The company's chief rival,

Target

(TGT) - Get Report

, reported a 3.3% rise in June same-store sales. The results were in line with Target's forecast for same-store sales growth of 3% to 5%. In the middle of the month, the company projected that sales would be toward the lower end of that view.

Costco

(COST) - Get Report

posted a same-store sales increase of 6%, edging out its competitors in the discount chain category but falling slightly behind analysts' expectations of a 6.1% gain.

Department stores in June fell from grace after enjoying a year of strong performance. Ken Perkins, president of the research firm Retail Metrics, says the sector is finally coming down from a high after a massive consolidation last year, when

Macy's

(M) - Get Report

-- formerly Federated Department Stores --merged with May Department Stores.

"Last year was an anomaly," Perkins says, pointing out that a number of department stores disappeared when the consolidation occurred, leaving less competition in the malls. But now traffic in malls is beginning to dwindle.

Macy's was the laggard in its category, posting a bigger-than-expected drop in June sales and cutting its earnings forecast. The operator of the Macy's and Bloomingdale's chains said same-store sales fell 2.7% in June, worse than its forecast for sales to be flat to down 2%. Wall Street expected a 0.8% decline.

The company now expects second-quarter earnings of 20 cents to 30 cents a share, excluding charges. Macy's prior guidance called for a profit of 35 cents to 45 cents a share; analysts had an average forecast for earnings of 41 cents a share.

J.C. Penney's

(JCP) - Get Report

same-store sales fell 1.5%, in line with its projection for a low-single-digit decline. Analysts had expected a 3.6% drop.

The department-store operator backed its guidance for second-quarter earnings of 77 cents a share. Analysts, on average, also target earnings per share of 77 cents.

Kohl's

(KSS) - Get Report

reported a same-store sales decline of 4.9%, a steeper fall than analysts' expectation of 2.4%.

"As expected, June sales were negatively affected by the shift of Memorial Day into fiscal May," said Larry Montgomery, Kohl's chief executive officer, in a statement. "We continue to expect July's sales to benefit from a calendar shift affecting our back-to-school business and our expectations are for July's comparable store sales to increase in the mid-single digit range."

The company reiterated its forecast for second-quarter earnings of 81 cents to 85 cents a share .

Upscale chain

Nordstrom

(JWN) - Get Report

continued to perform well, reporting a 2% rise in same-store sales. That beat Wall Street's forecast for 1.1% growth.

Luxury retailer

Saks

(SKS)

recorded a 5.6% fall in same-store sales, compared with Wall Street's expectation of a 4.1% drop. The company had forecast a decline in sales after a shift in its promotional calendar led to a whopping 37.5% jump in same-store sales in May.

Gap

(GPS) - Get Report

had another month of sales declines. The apparel seller posted a 5% drop in same-store sales, compared with Wall Street's expectation for a 4.6% decline.

Same-store sales tumbled 9% at Gap's namesake chain, while falling 7% at Old Navy. The company's Banana Republic division continued to be the one bright spot, with same-store sales rising 6% in June.

AnnTaylor's

(ANN)

same-store sales slid 8.4% in June, pulled down by weakness at its Loft division. The results were worse than analysts' expectation for a 4.7% drop, but AnnTaylor backed its earnings guidance for the year.

Limited Brands

(LTD)

, reported a 3% increase in same-store sales, slightly above analysts' projection for 2.9% growth. The Express division posted a same-store sales increase of 8% while Limited Stores' fell 4%. The retailer recently set plans to sell a majority stake in both chains.

Limited's two other divisions posted mixed results. Victoria's Secret's same-store sales jumped 8%, while Bath & Body Works' fell by 4%.

June same-store sales for

TJX

(TJX) - Get Report

climbed 5%, exceeding Wall Street's expectation of 3.3%.

In the teen space,

Abercrombie & Fitch

(ANF) - Get Report

reported a 2% increase in June same-store sales, besting analyst estimates for a 2.8% decline.

Pacific Sunwear's

(PSUN)

same-store sales rose 4.5% over the period, better than analysts' target of 3.2%.

American Eagle Outfitters

(AEO) - Get Report

late Wednesday reported an 8% increase in same-store sales for the month, beating analysts' estimate for 4.4% growth. The company also lifted its earnings targets for the second quarter.

Even

Hot Topic

(HOTT)

, a perennial sales laggard, managed to top expectations. The mall-based specialty teen chain reported a same-store sales decline of 4%, compared with Wall Street's forecast for a 6.7% drop.