Updated from 1:56 p.m. EDT

Apparel sales slowed markedly in June, taking some

retailers by surprise and prompting some analysts to lower their earnings expectations.

Gap

(GPS) - Get Report

and

Ross Stores

(ROST) - Get Report

warned Wall Street Thursday that quarterly earnings would fall short of analysts' expectations.

Sears, Roebuck & Co.

(S) - Get Report

also reported sluggish clothing sales, though electronics and appliance sales buoyed the company's results, which it said will enable it to exceed earnings expectations.

San Francisco-based Gap, which is due to post second-quarter earnings on Aug. 10, said it now expects to report 23 cents a share, 3 cents below the consensus estimates reported by

First Call/Thomson Financial

, which polled 22 brokerage firms. The company earned 22 cents a share in the second quarter of last year. The Gap's intimation followed other profit warnings earlier this

morning.

Ross said that even if sales were to rise slightly in July, its earnings would still be no more than 44 cents a share. In the comparable quarter last year, the company earned 42 cents a share, and analysts were predicting 49 cents a share this time around. Comparable store sales fell 1%, the company said.

Sears said its chairman, Arthur C. Martinez, "expressed confidence" that the company's earnings would "exceed current consensus expectations with earnings per share over the same period last year of at least 20 to 25%."

Hoffman Estates, Ill.-based Sears has been expected to earn 99 cents a share in the quarter, according to the consensus estimate of 14 brokerage firms surveyed by First Call/Thomson Financial. The retailer earned 86 cents a share in its second quarter of 1999.

Martinez's comments should be interpreted to mean the company will earn between $1.03 to $1.08 a share, a company spokeswoman said. Sears has not yet decided when it will report earnings for the quarter ended June 30, according to Leah Mangum, a representative of Sears' investor relations department.

The company said overall sales in apparel (except footwear) were slightly lower than last year, but higher for hardware, lawn and garden supplies, electronics and appliances. Sears also said June domestic store revenues were $2.8 billion, an increase of 3.6% over the $2.71 billion reported for the period last year. Comparable store sales gained 2.3%.

Gap finished regular trading up 3 1/2, or 12%, at 33 3/8, and shares of Ross came under selling pressure because of the company's warning, closing down 2, or 12%, at 14 13/16. Meanwhile, Sears finished down 1/4, or 1%, at 33 9/16.

Gap said that sales for June were $1.17 billion, an increase of 19% over sales of $977 million in June 1999. But gross margins fell, causing the earnings disappointment, according to the company. The company operated 3,224 stores this year, compared with 2,630 last year, an increase of 23%. On average, each store booked $362,903 in sales in June, compared with $371,482 in June 1999. The same-store sales decline was 2%, the company said.

Gap said it does not expect the shortfall to affect the following two quarters.

Gap's stock has fallen steadily throughout the quarter after trading in the mid-40s in April. Carole Cranmer, an analyst for

Josephthal & Co.

, said the company's expansion was not really the cause of its troubles.

"It was much too kid-focused," Cranmer said of the company's merchandise. Gap, which operates stores under the names

Old Navy

and

Banana Republic

, was forced to clear spring clothing at deep discounts, she said. But the company plans to market to adults with the next line of products in its Old Navy stores and to focus on workplace clothing in its flagship stores, according to Cranmer.

Cranmer rates Gap shares a buy, and her firm has not done recent underwriting for the company.

The June 1999 comparable store figures exceeded the June 1998 numbers by 13%. "Gap had a very tough comparison," Cranmer said, speculating that the stock price rose Thursday because "all the negative news was already in it."

Dorothy Lakner, analyst for

CIBC World Markets

, agreed that Gap's expansion was not to blame for the earnings shortfall. In the clothing retail business "for 15 years, people have been saying there are too many stores," she said. But "if you're doing well, you're taking market share from somebody else."

Gap's plan to market workplace clothing would address a key failure, Lakner said: The company has ignored the so-called "casualization" of office dress standards.

Despite all the disappointing sales figures, "the whole group seems to be rallying today," Lakner said of clothing retailers' stocks. "Investors are writing off the summer season."

Lakner rates Gap strong buy and does not cover Ross or Sears. Her firm hasn't done recent underwriting for those companies.

For Ross, which plans to add 30 stores this year, the earnings shortfall is "a macroenvironmental issue," said David A. Buchsbaum, analyst for

Wachovia Securities

. Reasons for the decrease in revenue include consumer appetites for apparel and lower consumption, partly caused by rising interest rates, he said.

"This is not a situation where they bought narrow suits," Buchsbaum said.

But unlike Gap, Ross does expect the slowdown to continue, hurting revenues and earnings. The company said it will base new inventory and expense plans on the assumption of sales that are flat to slightly better sales in the third quarter and flat in the fourth. That would result in 2000 earnings of $1.90 to $1.95 a share, compared to $1.70 in 1999, the company said. Wall Street had expected $2.04 a share.

Wachovia Securities has not done recent underwriting for Ross. Buchsbaum lowered his rating on the stock to long-term buy from strong buy based on the June sales figures.

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