Discounts, heat fuel August retail sales beat

The warmest August in more than a quarter of a century also helped lift sales of what summer apparel remained on store shelves. Off-price retailer TJX Cos Inc even said its sales were hurt slightly because it did not have enough summer clothes in stock.

The reports also suggested that retailers were able to clear excess inventories ahead of the crucial holiday-selling season without having to resort to deep discounts.

But with stubbornly high unemployment and weak consumer sentiment, shoppers were still focused on low prices when choosing what to buy.

The cheaper it is, the more I go there, Jialing Jiang, a Chicago high school student said on Wednesday as she shopped on the city's State Street.

Based on reports from 27 retailers, including discounter Target Corp and department store operator Macy's Inc , 63 percent posted sales that beat Wall Street estimates, according to Thomson Reuters data.

Industrywide, same-store sales rose 3.3 percent, while analysts had forecast an increase of 2.5 percent for the month. The International Council of Shopping Centers said August sales rose 3.2 percent by its count, and forecast September sales would rise 3 percent.

The news lifted retail shares overall. Costco Wholesale Corp were flat and department store chain J.C. Penney jumped 2.1 percent. Teen apparel retailer Abercrombie & Fitch shed 4.6 percent on concerns over a drop in sales at its abercrombie chain for children.

The Standard & Poor's Retail Index <.RLX> rose 1.8 percent, outpacing the wider stock market. But it has declined 11.9 percent from the end of April on concerns over the slow pace of U.S. economic recovery, compared with an 8.5 percent decline in the S&P 500 <.SPX> over that period.

HOT TIMES, HOT SALES

On Thursday, the Labor Department said new U.S. claims for unemployment benefits fell, but were still too high to signal a real turnaround for the labor market.

We're seeing traffic out there -- the consumer is out. But it's a promotional environment right now, said David Bassuk, managing director of the retail practice at Alix Partners.

August 2010 was the warmest since 1983 and second warmest in 50 years, according to Planalytics Inc, which provides weather information to businesses. Sales tax holidays in several states also helped lift sales of selected items, analysts said.

But customers waited for the last minute to shop in order to get the best deals.

We saw an increase in traffic and transactions as we moved throughout the month as more schools re-opened in the latter half of August, Penney spokeswoman Teneka Ray said in a prerecorded call.

Apparel retailers saw sales rise 3.2 percent, compared with the average analyst estimate of a 2.4 percent increase, according to Thomson Reuters data.

Still, analysts cautioned that retailers will face tougher comparisons to 2009 sales starting in September, after lapping declines in same-store sales in 2009 so far this year.

It's hardly a cause for jubilation or excitement. I think everybody's struggling to make business, said Richard Jaffe, an analyst with Stifel Nicolaus.

Some retailers are buying their sales with steep discounting that will hit margins, said Sherif Mityas, a partner in the retail practice at A.T. Kearney.

We believe it is going to show up in slightly depressed earnings, he said.

Department stores like Macy's and J.C. Penney beat expectations with sales increases of 4.3 percent and 2.3 percent, respectively.

Retailers that focused on low prices continued to be among the best performers. Discounters saw a 4.3 percent increase, compared with expectations for a 3.1 percent gain.

Warehouse club operator Costco said U.S. same-store sales rose 5 percent in August, excluding sales of gasoline, beating the average analyst estimate of 3.6 percent.

Dollar store operator Family Dollar Stores Inc said same-store sales rose 6.1 percent in the fourth quarter that ended August 28, beating the average analyst estimate of 3.1 percent.

Limited Brands Inc posted a same-store sales increase of 10 percent, led by a 15 percent surge at its women's lingerie chain, Victoria's Secret. Analysts had expected an increase of 7.3 percent for the company.

At the higher-end, upscale department store Nordstrom Inc saw August same-store sales rise 6.3 percent, better than the 5.9 percent increase predicted by analysts. Its shares rose 6.5 percent.

(Additional reporting by Emily Stephenson in Chicago, Ben Klayman in Detroit and Phil Wahba and Helen Chernikoff in New York)

(Reporting by Brad Dorfman, editing by Michele Gershberg, Dave Zimmerman)