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The Honolulu Advertiser
Posted on: Friday, June 2, 2006

Solid sales for retailers in May

By Anee D'Innocenzio
Associated Press

NEW YORK Consumers apparently shook off their worries about higher gas prices during May, shopping with enthusiasm at stores and malls and giving many retailers better-than-expected results. A big exception was Wal-Mart Stores Inc., whose low-income consumers are feeling the biggest financial squeeze from $3-a-gallon gas.

As the nation's merchants reported their sales figures yesterday, winners included Target Corp., Federated Department Stores Inc. and J.C. Penney Co. Inc.

Gap Inc. and Sharper Image Corp., which continue to struggle with their merchandising strategies, again were the laggards last month.

Overall, "we had some very nice surprises, particularly in the apparel sector," said Jharonne Martis, an analyst at Thomson Financial. "It means that the consumer is solid. Despite the worries of gasoline, consumers are still consuming."

The International Council of Shopping Centers-UBS preliminary sales tally of 49 retailers rose 4.2 percent in May, better than the 3.2 percent gain expected. The tally is based on sales at stores opened at least a year, known as same-store sales. Same-store sales are considered the best indicator of a retailer's health. May's sales pace matches the 4.2 percent gain averaged from January through April.

While shoppers have remained resilient, the fear is that consumers will inevitably cut back their spending at malls and stores as the heavy summer driving season kicks into gear. Shoppers also face mounting pressures from higher interest rates, which make financing debt more expensive, as well as a cooling housing market.

Such economic headwinds are clearly making consumers more worried. The Conference Board said Tuesday that consumer confidence fell in May, suffering its steepest drop since the aftermath of hurricanes Katrina and Rita last year.

Still, solid gains in the job market and rising wages have offset the pain at the pump for many customers, helping to prop up consumer spending. Analysts worry that the cushion could well evaporate as companies look for ways to cut labor costs as they battle higher energy costs and other expenses.

The Labor Department yesterday reported that the number of newly laid-off workers filing claims for unemployment benefits unexpectedly rose to 336,000. Even with the modest increase, the government is expected to show that nonfarm payrolls have added a healthy 170,000 jobs, up from a disappointing 138,000 job gain in April. The unemployment rate should remain at 4.7 percent.

Wal-Mart is already starting to feel the pinch from higher gasoline prices. The discounter reported a 2.3 percent gain in same-store sales. Analysts surveyed by Thomson Financial expected a 2.9 percent gain in same-store sales.

"Fuel prices continue to be a top concern for our customers," said Tom Schoewe, executive vice president and chief financial officer, in a statement. "We believe that our customers are consolidating their store visits and focusing their spending on consumables a trend that we have been seeing since Easter."

To boost sales, Wal-Mart is trying to mimic rival Target's strategy of appealing to its more upscale consumers with better quality and trendier apparel and electronics.

Meanwhile, Target enjoyed a 5.7 percent gain in same-store sales, better than the 4.8 percent estimate.

Department stores had strong results. Nordstrom had a 7.8 percent gain in same-store sales; analysts expected a 4.2 percent gain.

Federated, which acquired May Department Stores Co. last year, had a same-store sales increase of 9.2 percent, better than the 5.3 percent estimate. Same-store sales include only Macy's and Bloomingdale's locations.

Limited Brands had a 7 percent gain in same-store sales, exceeding the 5.3 percent gain Wall Street anticipated.

AnnTaylor Stores Corp. posted a 12 percent gain in same-store sales, better than the 6.1 percent estimate.

But Gap had a 6 percent drop in same-store sales, worse than the 4.1 percent decline analysts forecast.