Second-quarter sales good, but retailers remain cautiously optimistic

By Mike Duff

In another sign that retailers with a succinct value message can make it in the current economy, Ross Stores posted sales of $1.64 billion for the 13 weeks ended Aug. 2, a 14% increase over last year’s second quarter. Comparable-store sales rose 6%.

Ross Stores vice chairman, president and ceo Michael Balmuth said the company estimates that earnings per share for the most recent quarter should come in at 53 cents to 54 cents, compared to the company’s prior forecast range of 51 cents to 53 cents, and versus 37 cents for the second quarter ended Aug. 4, 2007.

Balmuth said the company concluded that the tax rebate checks and favorable weather helped boost the quarter, along with the availability of superior fashion brand product. The company opened 25 Ross Dress for Less stores during July.

Other good news emerged from retailers’ sales announcements made last week as well, but bad tidings were held partly responsible for a Wall Street selloff on Aug. 7 that pushed the Dow Jones average down 1.93% to 11,431.43. Cautious sales guidance by Wal-Mart in the wake of its July numbers announcement was a factor, but retail postings that generally dissatisfied investors also played a role in depressing share prices, in addition to new financial sector woes.

Yet, the numbers for Wal-Mart, which has been holding its own in the rough economy, were pretty good. In July, Wal-Mart Stores posted a total company sales gain of 9.4% to $30.2 billion and a comps increase of 3.7% including fuel, 3% without. Tom Schoewe, evp and cfo, commented,

“We estimate U.S. comparable-store sales, excluding fuel, for the August four-week period to be between 1% and 2%, because we still see sales volatility from week to week, especially around paycheck cycles.”

In addition, in a conference call, Eduardo Castro-Wright, Wal-Mart U.S. president, said traffic has been up in stores, but that the immediate future isn’t going to be any easier on the company. “Wal-Mart’s clear price leadership position continues to meet the needs of our customers in a difficult economy. Better merchandise presentation, our everyday low price message and an improved store experience resonate with customers. With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month,” he said.

The estimates, commentary and the comps increase, which was under the 3.4% analysts expected, seemed to cause the trouble. Wal-Mart shares fell 6.3% to $56.96 on Aug. 7. Still, for the first 26 weeks of the fiscal year, Wal-Mart’s sales rose 9.6% to $196.48 billion, with comps up 3.7% with fuel and 3.2% without. Wal-Mart said it expects to report total net sales for the second quarter of about $102 billion, and it will report earnings on July 31.

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