Retail reports disappoint; jobless claims rise

NEW YORK -- The back-to-school shopping season had a disappointing start in July as consumers rattled by a weakening housing market and other financial pressures stayed away from stores and malls.

As merchants reported sluggish monthly sales results Thursday, the weakest performers were mall-based apparel chains, particularly teen merchants like Pacific Sunwear of California and Wet Seal. Wal-Mart Stores wmt posted a slim gain but warned that its increased discounting are hurting profit margins.

Among the few standouts were J.C. Penney jcp and Costco cost, both of which beat expectations.

In another indicator of some economic softness, the Labor Department said Thursday that new applications for unemployment insurance increased a seasonally adjusted 7,000 to 316,000 the week ended Aug. 4. That left claims at their highest point since late June.

Economists were predicting claims would be lower, around 310,000. Still, claims are lower now than a year ago, when they stood at 319,000.

July's retail results extended the slowing sales trend retailers have experienced since February as consumers are forced to pay more for food and gas. The slumping housing market and a widening credit crunch, both of which have made the stock market turbulent, are also making consumers shy about spending.

"Overall, July sales were negatively impacted by soft mall traffic," said Ken Perkins, president of RetailMetrics, a research company in Swampscott, Mass. "The consumer is holding up, but certainly feeling the pinch of the housing market and higher gasoline price."

Wal-Mart posted a 1.9% gain in same-store sales or sales at stores open at least a year. Same-store sales are considered a key barometer of a retailer's health. The results beat the 1.5% estimate of analysts surveyed by Thomson Financial, and the discounter said it was encouraged by positive early signs in back-to-school and back-to-college categories. However, it acknowledged that apparel and home furnishings were again weak and are expected to remain so through the third quarter.

The discounter also said that while customers are responding to its move to cut prices on more than 16,000 products started in July, the heavier discounting is hurting profits.

Meanwhile, rival Target's same-store sales rose 6.1%, above the 5.9% forecast.

Costco reported a 7% increase in same-store sales, exceeding the 5.5% estimate, while J.C. Penney posted a robust 10.8% gain in its department store business, above the 9.8% forecast.

Nordstrom reported that same-store sales rose 9.4% as the well-heeled customer continues to splurge.

Macy's had a 1.4% decline in same-store sales for the month, in line with the 1.5% analysts expected.

Limited posted a 3% same-store sales drop, worse than the 0.5% forecast.

Gap fell short of expectations, posting a 7.0% decline in same-store sales. Analysts had forecast 4.9% drop.

AnnTaylor posted a 5% decline in same-store sales, worse than the 3.4% expected.

Teen retailers were hit hard, though many store executives blamed the tax holiday shifts in Texas and Florida as a major factor. According to John Morris, managing director at Wachovia Securities, Pacific Sunwear and Hot Topic have the biggest exposure to these markets among teen merchants, with 19.8% and 15.4% of their stores located in Florida and Texas, respectively.

Still, while Perkins noted that the tax issue was a big factor, he said it was puzzling to see how poorly teen retailers fared. "There might be some fashions issues, but it is too soon to tell," he said.

Abercrombie & Fitch's same-store sales fell 4%, worse than the 0.7% expected. American Eagle Outfitters announced that same-store sales fell 6%; analysts expected a 2.9% increase.The company said customers are responding well to the back-to-school collection.

Hot Topic had a 7.4% decline in same-store sales, worse than the 7.1% estimate.

Wet Seal suffered a 7.2% decline, worse than the 5.0% projection, while Pacific Sunwear had a 4.6% slide; analysts anticipated a 3.2% gain. Bebe Stores posted a 6.3% decline, steeper than the 4.6% forecast.