July Sales Struggle as Tax Rebate Cash Ends

NEW YORK (Reuters)- Retailers posted disappointing July sales results on Thursday asshoppers ran out of extra tax rebate cash and tentatively began theirback-to-school shopping.

Wal-Mart Stores Inc, the world’s largest retailer, said its Julysales at U.S. stores open at least a year, or same-store sales, rose 3percent, missing Wall Street expectations for a gain of 3.4 percent.

"With the end of the stimulus checks, we know consumers are spendingmore cautiously, and we continue to see a pronounced paycheck cycle atthe end of the month," said Eduardo Castro-Wright, head of Wal-Mart’sU.S. operations.

Shares of Wal-Mart fell 3.2 percent in premarket trading.

Retailers typically use the month of July to clear out summermerchandise and kick off the back-to-school shopping season, which isthe second most important season of the year behind the Decemberholidays.

Retailers are watching the start of the back-to-school seasonclosely to see how consumers choose to spend their limited dollars andwhat that might mean for the crucial year-end holiday season.

June sales were boosted by tax rebate checks, which put extra cashinto the hands of consumers. But the final rebate checks were mailed inJuly, and retailers are watching to see how shopper spending holds uponce the excess cash disappears.

Also reporting disappointing results were clothing retailer Gap Inc , Pacific Sunwear, Hot Topic and Children’s Place.

With no more tax rebates on the horizon, Wal-Mart issued a cautious forecast for August.

"We still see sales volatility from week to week, especially aroundpaycheck cycles," Tom Schoewe, Wal-Mart’s chief financial officer, saidin a statement.

STICKING TO THE BASICS

Retailers have eked out small sales gains this year as shoppers’ability to spend has been limited by soaring gasoline prices, acrumbling housing market, tighter credit and higher grocery bills.

The U.S. government distributed roughly $100 billion in tax rebatecash to consumers between late April and mid-July, hoping to kick-startthe economy. But benefits from the checks were expected to beshort-lived as consumers confront inflationary pressures and a weak jobmarket.

U.S. consumer prices jumped at the sharpest rate in more than aquarter-century during June, according to government data released thisweek, while the U.S. unemployment rate hit a four-year high duringJuly, a Labor Department report showed last week.

To navigate the difficult climate, consumers have been shunning splurges and sticking to buying the basics.

Sales at discounters like Wal-Mart Stores Inc, Costco Wholesale Corpand BJ’s Wholesale Club Inc had been outpacing competitors as shoppersseek out lower prices on food, toiletries and gasoline.

Costco, which operates gas stations at many of its warehouselocations, reported a better-than-expected 10 percent rise in its Julysales at stores open at least a year.

"We are of course continuing to benefit from some inflation on thefood side as a result of the recent run-up in the cost of commoditiesand the continued run-up in the price of oil and gasoline," the companysaid on the recorded call.

Gas prices hit a record of $4.11 on July 7 but have been droppingsince due to lower gasoline demand and cheaper crude oil costs, whichare being passed on to consumers at the pump.

CLOTHING RETAILERS STRUGGLE

Clothing retailers continued to struggle as shoppers stick to the basics.

Teen retailer Pacific Sunwear of California Inc posted adisappointing 4 percent drop in July same-store sales, hurt by weaksales of swimwear and accessories, while Hot Topic Inc’s same-storesales fell 2.1 percent, compared with analyst expectations for adecline of 1.3 percent.

At Children’s Place Retail Stores Inc same-store sales were flat, while analysts expected a gain of 7 percent.

But department store operator Bon-Ton Stores Inc said its Julysame-store sales rose 0.7 percent, beating Wall Street estimates for adecline of 1.0 percent.

(Reporting by Nicole Maestri, editing by Dave Zimmerman)