In Search of Bargains, Consumers Help Discounters

Consumers continued to spend carefully in August, rewarding the giant discount chains once again while keeping clear of department stores and most other mall retailers.

Thursday’s retail sales reports brought more good news to discounters such as Wal-Mart Stores Inc. and Kohl’s Corp., which led the industry to a modest August increase in same-store sales, or sales from stores open at least a year, of 2.8% compared with August 2000, according to the Goldman Sachs retail composite index.

Wal-Mart, the world’s largest retailer, posted a sales gain of 7.2% in stores open at least a year as customers sought out bargains and back-to-school supplies.

“The ability to spend has been crimped by the economic slowdown, and that has shifted consumers’ focus to the lower end,” said Mike Niemira, retail economist with Bank of Tokyo-Mitsubishi in New York. “Wal-Mart in particular benefits. The consumer is going for value, and that’s Wal-Mart.”

Bank of Tokyo-Mitsubishi pegged the company’s overall retail sales increase at 3.5%.

Despite its good news, shares of Wal-Mart slipped $1.78 to close at $47.37 on the New York Stock Exchange as investors worried about the retail sector as a whole.

Other discounters’ strong numbers didn’t help their stock prices either. Target Corp. said its same-store sales rose 2.4%, with Target stores rising 3.9%. Discount chain Dollar General Corp. said its August same-store sales rose 6.7% and predicted strong total and same-store sales for September and the current quarter.

Shares of Target fell $1.83 to close at $33.15, and Dollar General shares slipped 12 cents to close at $17.08, both on the NYSE.

Kohl’s same-store sales rose 4.9%. It’s stock fell 91 cents to $52.69 on the NYSE.

Same-store sales are considered an important measure of a company’s overall health because the number excludes new and closed stores.

The discounters’ gains were the specialty clothing sellers’ losses as slow end-of-summer sales left companies such as Gap Inc., Abercrombie & Fitch Co., AnnTaylor Stores Corp. and most of the big-name department stores in the cold.

For some top retail executives, Thursday was even tougher, because news of slow sales coincided with their appearances at the Goldman Sachs Global Retail Conference in New York, where about 1,100 of the world’s biggest institutional investors gathered to hear company presentations.

As investors streamed into the Pierre Hotel early Thursday morning, most joined the crowd around a bank of computers, craning to see the sales numbers. A few shook their heads as they read the worst reports.

When someone announced Gap Inc.’s particularly dismal same-store sales--off 17% across the company’s Gap, Banana Republic and Old Navy stores--several in the group groaned.

“Just have to move on, unfortunately,” one man said as he walked away from the group.

Gap also warned that third-quarter sales and profit could fall below last year’s levels. The company’s stock fell $4 to close at $15 on the NYSE.

Abercrombie & Fitch’s same-store sales fell 10%, and its stock lost $4.94 to $23.40 on the NYSE. AnnTaylor same-store sales fell 3.5%, and its share price dropped 51 cents to $32.50 on the NYSE.

Although Goldman Sachs analysts predict a modest industrywide improvement for the second half of the year, the August results offer more proof that not all retailers will benefit.

Many of the retailers at the conference said they will focus on internal operations and productivity to increase profitability, rather than count on sales that may not come.

During a Thursday presentation by Federated Department Stores Inc.--which reported a same-store sales decline of 2.6%, slightly worse than analyst estimates--Chief Financial Officer Karen Hoguet cautioned investors not to expect too much improvement in the short term.

“There is some concern given the weakness of the economy,” she said. “We still expect it to be a tough fall.”

Federated shares closed down $1.65 at $34 on the NYSE.

Carol B. Tome, chief financial officer for Home Depot Inc., said some economic factors that would seem to bode well for Home Depot have not resulted in a better performance.

“Interest rate cuts are not spurring home improvements,” she said. “A lot of those tax-cut dollars are going into back-to-school.”

Home Depot shares fell $2.44 to $43.55 on the NYSE.

Even the strong performers were hesitant to gloat.

“We would like it if, overall, retailers were better,” said Laura Weil, American Eagle Outfitters Inc.’s chief financial officer, who reported a 2.1% same-store sales increase. “When Gap and Abercrombie don’t do well, people look at that and the market looks at that and think all of retail has problems.”

American Eagle Outfitters closed down 15 cents at $24.19 on Nasdaq.