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Price cuts boost retail

Markdowns bring bargain-hungry shoppers into stores in January, lifting sales.

©Associated Press
February 8, 2002

NEW YORK -- Deep discounting of winter merchandise lured consumers into the nation's stores during January, offering struggling retailers a brief respite from a sluggish sales trend.

But while analysts see the sales gains announced Thursday as encouraging, they don't think the consumer is ready to splurge. Economic uncertainty continues to drive consumers into Wal-Mart Stores Inc., wholesale clubs and other moderate-price stores, which again outperformed the rest of the retail industry during January.

Meanwhile, department stores and apparel chains continue to struggle, though overall the sales declines weren't as deep as Wall Street expected. Notable exceptions were May Department Stores Inc. and Gap Inc., which posted deeper sales declines than expected.

"This may be a signal that the end of the recession is near. The weakness wasn't as bad in some areas as we have seen," said Michael Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd. But, he cautioned, January is not representative" of consumer spending trends because it is a time when merchants clear out inventory and make room for spring goods.

The bank's index measuring the sales of 80 stores rose 5.1 percent in January, better than the 3 percent Niemira projected. The gain was the strongest monthly showing since January 2000, when the index rose 5.7 percent.

Other analysts were also wary.

"Consumers came out in response to the great values in the stores, but are they willing to pay regular price for spring (merchandise)? It is tough to say," said Richard Jaffe, an analyst at UBS Warburg.

Niemira expects sales at stores open at least a year, known as same-store sales, to be up about 2.5 to 3 percent during the next few months, more in line with the modest retail sales trend of 2001. Same-store sales are considered the best indicator of a retailer's health.

"Americans are not yet ready to go on spending sprees and buying binges, particularly at department stores," said Kurt Barnard, president of Barnard's Retail Trend Report, in Montclair, N.J. "They are willing to spend -- if the prices are real bargains."

Wal-Mart, which posted an 8.3 percent gain in same-store sales, exceeded its own projections and Wall Street estimates. Analysts polled by Thomson Financial/First Call expected Wal-Mart to report a 6.2 percent gain.

The company, which announced fiscal 2001 sales of $219-billion, also secured its place as the world's largest company, supplanting oil giant ExxonMobil Corp. Last month, ExxonMobil announced 2001 revenues of $212.9-billion.

Analysts believe Wal-Mart and its rival Target Corp. will continue to profit from the problems of Kmart Corp., which filed for bankruptcy Jan. 22 and is expected to close several hundred stores. The discounter did not report January sales, but will be reporting monthly operating statements with the bankruptcy court starting at the end of March.

Target reported a better-than-expected 5.8 percent gain in same-store sales for January.

Another pleasant surprise came from J.C. Penney Co. Inc., which posted a better-than-expected 5.9 percent gain in same-store sales in its department store division. Comparable sales at its Eckerd drugstore chain increased 7.1 percent, with pharmacy sales increasing 9.8 percent and front-end sales increasing 1.7 percent. Front-end sales were strongest for beverages, baby care and hygiene, cosmetics and fragrances, household products and candy, Penney reported. Apparel chains and department stores again struggled, but analysts think their aggressive discounting, along with a concerted effort to get spring goods into the stores, helped boost sales.

The Limited Inc. posted same-store sales gains of 6 percent in January. Analysts polled by Thomson Financial/First Call expected a 2.4 percent decline. And Saks Inc. recorded a 1.7 percent gain in same-store sales, dramatically better than the 5 percent decline Wall Street expected.

Jaffe said he is heartened by retailers' recent moves to manage their inventory and expenses more effectively. "Inventory is down. There are headcount reductions, and capital expenditures are being reduced," he said.

Gap recorded a same-store sales drop of 16 percent, worse than the 13 percent decline analysts projected. Other disappointments included May Department Stores Co., which had a 10.7 drop in same-store sales, worse than what analysts expected. Sears, Roebuck and Co., hampered by sluggish apparel sales, reported that same-store sales were down 3.4 percent, slightly below Wall Street projections.

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