Retail Sales Surprisingly Strong

New York, NY, Aug. 8--Retailers finally got a break in July as warm weather and heavy discounting helped lift sales above expectations for many merchants, even the struggling department store sector. As retailers reported their sales results Thursday, all industry segments appeared to benefit from an improved selling environment. Wal-Mart Stores Inc., the industry leader, boosted its profit outlook for the second quarter. J.C. Penney Co. Inc., Kohl's Corp. and Gap Inc. were among the retailers reporting sales that beat analysts' forecasts. Even May Department Stores Co., which has struggled with sales declines, eked out a solid increase in sales at stores open at least a year, surpassing analysts' forecasts. Sales at stores open at least a year, known as same-store sales, are considered the best indicator of a retailer's health. "It was a good month, and it may be a good omen for the second half," said Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd. "Sure, the month was promotional and weather helped, but this could be the start of a much better trend." Bank of Tokyo-Mitsubishi's same-store sales tally of 77 retailers was up 4.3 percent, well above the 3 percent gain Niemira had expected. That compares to a 2.6 percent increase in the year-ago period. The pace is well above the sluggish 1.5 percent increase seen from last August through April, although in the past two months, same-store sales improved slightly, averaging a 2.2 percent gain. The strong showing from retailers coincided with upbeat economic data from the government. The Labor Department reported that productivity--the amount that an employee produces per hour of work--rose an annual rate of 5.7 percent in the April to June quarter. That was the best performance since the third quarter of 2002. The department also said new applications for jobless benefits slipped by a seasonally adjusted 3,000 to a six-month low of 390,000 for the work week ending Aug. 2. July--when retailers step up discounting to clear out summer merchandise and make room for fall goods--is one of the least important months in a retail sales calendar. Analysts are now closely monitoring August and September, which account for the critical back to school season. Wal-Mart, which along with other retailers struggled with cooler than normal temperatures in May and June, said same-store sales were up 4.6 percent, well past the 3.7 percent increase predicted by analysts surveyed by Thomson First Call. Wal-Mart's total sales were up 11.9 percent, driven by food, electronics, swimwear and pet supplies. The discounter now expects earnings from continuing operations for the second quarter, ended July 31 to be around 52 cents per share. Analysts surveyed by Thomson First Call expected 50 cents per share. The retailer is slated to report earnings results on Wednesday. Kohl's, which had seen sales slow over the last few months, had a big improvement in July. Same-store sales increased 6.7 percent, far beating analysts' expectations of 1.6 percent. Total sales increased 21.4 percent. Penney said same-store sales were up 3.7 percent for its department store business, beating Wall Street's projections of a 1.0 percent gain. Total sales were up 3.4 percent. May said its same-store sales rose 1.8 percent, while its total sales were up 4.5 percent. Analysts had expected a same-store sales decrease of 2.5 percent. Federated Department Stores Inc., which operates such stores as Bloomingdale's and Macy's, did not fare as well, reporting same-store sales that decreased 0.4 percent. Total sales slipped 0.5 percent.