By Anne D'Innocenzio
The Associated Press
NEW YORK - Consumers' frugal spending extended into a second month during July, giving many retailers lackluster sales gains, particularly at apparel chains including Gap Inc. and mid-priced department stores.
As retailers announced their monthly results Thursday, the bright spots were luxury merchants and discounters like Wal-Mart Stores Inc.
Analysts attributed the overall disappointing sales to a variety of factors, including the end of the mortgage refinancing boom and the continuing impact of higher gasoline prices and grocery bills, which have hurt middle-income shoppers. They said retailers should expect more of this modest sales trend going forward.
The results took Wall Street by surprise, and contributed to a sharp drop in Thursday's trading. John Morris, senior retail analyst at Harris Nesbitt, said investors expected a moderate recovery in July after June's sluggish sales.
"It throws some water on the view that June was just a hiccup, and bump in the road," Morris said. "You now have two months in a row of lackluster sales. I think we are at a critical period for forecasting the health of retailers."
Morris said consumers are more hesitant to spend while they feel uncertain about the presidential election and the economy.
Another problem came from a lack of inventory - there weren't enough summer clearance goods to bring people into the stores for bargains.
The International Council of Shopping Centers-UBS sales tally of 72 retailers was up 3.1 percent, at the low end of the 3 percent to 4 percent forecast. The tally is based on what the industry calls same-store sales, or sales at store opened at least a year. Those sales are considered the best indicator of a retailer's performance.
The results were in line with the 3 percent gain in June, and well below the average 6 percent increase from January through May.
July is one of the least important months of the retailing year and is used by stores to clear out summer goods and to start bringing in fall goods, but it nonetheless reflects consumer trends. Wall Street will be closely watching the critical back-to-school business in August and September.
Higher interest rates have slowed mortgage refinancings, which means many consumers have less free cash to spend on non-essentials. And while gas prices have dipped somewhat, they are still quite high.
Wal-Mart said it had a 3.2 percent gain in same-store sales in July, virtually in line with the 3.1 percent forecast of Wall Street analysts surveyed by Thomson First Call. At Target Corp., same-store sales were up 3.8 percent, better than the 2.8 percent estimate from Wall Street.
Federated Department Stores Inc. posted a 3.7 percent increase in same-store sales, below Wall Street's forecast of 5.4 percent.
High-end stores like Neiman Marcus Group and Saks Inc. continued to please Wall Street as well-heeled shoppers have been the first to benefit from the economic recovery.
Neiman Marcus reported a 16.6 percent gain in same-store sales, far exceeding Wall Street's forecast of 8.8 percent.
Saks, which operates Saks Fifth Avenue as well as moderate-price stores like Carson Pirie Scott, reported a 5.5 percent gain in same-store sales, above the 5 percent Wall Street anticipated.
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