July Sales Struggle as Tax Rebate Cash Ends

 
 
By Reuters -  |  Posted 2008-08-07
 
 
 

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

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

"With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month," said Eduardo Castro-Wright, head of Wal-Mart's U.S. operations.

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

Retailers typically use the month of July to clear out summer merchandise and kick off the back-to-school shopping season, which is the second most important season of the year behind the December holidays.

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

June sales were boosted by tax rebate checks, which put extra cash into the hands of consumers. But the final rebate checks were mailed in July, and retailers are watching to see how shopper spending holds up once 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 around paycheck cycles," Tom Schoewe, Wal-Mart's chief financial officer, said in 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, a crumbling housing market, tighter credit and higher grocery bills.

The U.S. government distributed roughly $100 billion in tax rebate cash to consumers between late April and mid-July, hoping to kick-start the economy. But benefits from the checks were expected to be short-lived as consumers confront inflationary pressures and a weak job market.

U.S. consumer prices jumped at the sharpest rate in more than a quarter-century during June, according to government data released this week, while the U.S. unemployment rate hit a four-year high during July, 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 Corp and BJ's Wholesale Club Inc had been outpacing competitors as shoppers seek out lower prices on food, toiletries and gasoline.

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

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

Gas prices hit a record of $4.11 on July 7 but have been dropping since due to lower gasoline demand and cheaper crude oil costs, which are 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 a disappointing 4 percent drop in July same-store sales, hurt by weak sales of swimwear and accessories, while Hot Topic Inc's same-store sales fell 2.1 percent, compared with analyst expectations for a decline 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 July same-store sales rose 0.7 percent, beating Wall Street estimates for a decline of 1.0 percent.

(Reporting by Nicole Maestri, editing by Dave Zimmerman)