US Retail Sales Hold Up

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    UPDATE 1-U.S. stores post higher than expected Oct. sales
    Thursday November 7, 12:36 pm ET
    By Jean Scheidnes

    (Recasts, adds Bank of Tokyo data, analyst comments.)
    NEW YORK, Nov 7 (Reuters) - U.S. retailers reported mostly higher October same-store sales on Thursday, alleviating fears of a disastrous holiday season, and prompting apparel chains and department stores to hike their profit targets.

    The first cold snap of the year heated up sales at U.S. chain stores in October, demonstrating that consumers could be enticed to spend during the crucial holiday period.

    "The month of October has turned into a real big surprise," said Kurt Barnard, president of Barnard's Retail Trend Report.

    "This occurred on a background of an uncertain economy, and that indicates to me that the consumer is willing to spend so long as there is an incentive. In this case it was cold weather and quite a few very good promotions," he said.

    Same-store sales, or sales at stores open at least a year, are a key measure of retail performance because they factor out sales growth due to new store openings.

    The data has come under close watch as some categories of consumer spending, which accounts for two-thirds of U.S. economic activity, appear at times to be faltering.

    But much of Thursday's data did not bear out this fear.

    Bank of Tokyo-Mitsubishi put the overall same-store sales growth at 3.1 percent, the best monthly performance since June, based on data from 81 chains. The bank's estimate had ranged from 1.5 percent to 2 percent.

    "The fact that you're starting to get strength out there implies a potential turning point in the industry," said Mike Niemira, an economist for the bank. But, he added, "It's not going to come for all retailers at the same time."

    Gap Inc. (NYSE:GPS - News) said on Thursday October sales at stores open at least a year rose 11 percent, halting a 29-month slide. The top U.S. specialty apparel retailer also raised its earnings forecast for the just-ended third quarter.

    Most analysts had estimated Gap's same-store sales between a decline of 2 percent and a rise of 2 percent. The San Francisco company -- which owns Gap, Banana Republic and Old Navy stores -- had a 17 percent decline in October 2001.

    Other mall-based apparel retailers, including Talbots Inc.(NYSE:TLB - News), AnnTaylor Stores Corp.(NYSE:ANN - News) and Abercrombie & Fitch Co.(NYSE:ANF - News), also raised their quarterly earnings forecasts.


    "Despite what the consumer may say about being worried about the economy, they're still spending," said Bank One chief economist Diane Swonk.

    Major department stores including J.C. Penney Co. Inc.(NYSE:JCP - News), Kohl's Corp.(NYSE:KSS - News) and Macy's and Bloomingdale's parent Federated Department Stores Inc.(NYSE:FD - News) all posted sales well ahead of forecasts and raised quarterly earnings targets, crediting cooler weather for strong seasonal demand.

    Department stores had been struggling in recent months as a sluggish economy left consumers feeling frugal. But strong promotions from J.C. Penney and others lured shoppers back.

    "People are spending money if it's something they really want," said Wells Fargo Securities analyst Jennifer Black.

    High-end department stores Nordstrom Inc.(NYSE:JWN - News), Neiman-Marcus Group Inc.(NYSE:NMGa - News) and Saks Inc.'s(NYSE:SKS - News) Saks Fifth Avenue all reported increased same-store sales.

    "(It) shows that the consumer will spend on more expensive things if they are classic and fashion-right," Black said.

    Retailers cautioned that November sales would be hurt because Thanksgiving -- the traditional start to the holiday shopping season -- falls six days later than it did last year, so most retailers won't see benefits until December.

    Wal-Mart Stores Inc. (NYSE:WMT - News), the world's biggest retailer, said its October same-store sales rose 3.7 percent, meeting its modest forecast. It predicted a similar gain for November, but noted that the late Thanksgiving would skew results.

    The strongest selling categories included home furnishings, bedding, and electronics. Clothing sales picked up mid-month when a cold snap hit much of the United States and are now back on plan for the season, the retailer said.

    Wal-Mart said same-store sales at its Sam's Club warehouse stores fell 1.6 percent. Competition has been fierce as Sam's battles with Costco Wholesale Corp.(NasdaqNM:COST - News) and BJ's Wholesale Club Inc.(NYSE:BJ - News) for customers in a saturated sector.

    Costco cut its earnings forecast for its first fiscal quarter, and BJ's posted a decline in same-store sales.

    A slumping economy has helped warehouse clubs and discounters as cost-conscious consumers hunt bargains, but the impact of a jittery economy is affecting nearly all retailers.

    Trendy discounter Target Corp.(NYSE:TGT - News) reported 1.5 percent higher same-store sales, reversing two months of declines.

    "There is evidence of slower growth overall in the moderate and value retail markets, as indicated by Target's and Wal-Mart's discount stores' comparable sales," said Cyber Business Credit retail analyst Richard Hastings.

    Some of the retailers that raised profit targets had lowered them only a month earlier, after September sales saw little if any benefit from what should have been a very easy comparison with the battered month of September 2001.

    "It's one of those kinds of seasons where the adjustments are going to be ongoing. And it's going to be hard reading, going forward, with November presumably taking a hit because of the calendar. You have a lot of volatility," Niemira said.

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