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					June 6, 2008

May Comp-Store Sales Lift Retail Stocks
By Jeanine Poggi

Positive surprises in May comparable-store sales sent retail shares up on Thursday, but analysts say there really
isn't all that much to cheer about.

In a tough economic environment, where meeting expectations is often just as good as beating them, investors
gobbled up retail shares, sending the S&P Retail Index to 407.49, a 2 percent increase. The Dow Jones Industrial
Average gained 1.7 percent to 12,604.45, and the broader S&P 500 grew 2 percent to close at 1,404.05.

"The [retail] stocks are all performing very well today, but I think it's more of a short covering than general
buying interest," said Kimberly Greenberger, retail analyst at Citigroup.

The biggest gainer among retailers was Hot Topic Inc., which surged 16.9 percent to $6.16 a share after
reporting a 0.2 percent decline in comps. Analysts on average expected comps to fall 2.2 percent. Not far
behind, Caché Inc. jumped 14.9 percent to $14.59 on 5 percent comp growth, beating consensus estimates of a
4.4 percent drop.

"The best news, although it is still early, is that no retailers reduced second-quarter earnings guidance," said
Todd Slater, retail analyst at Lazard Capital Markets.

While overall May results beat cautious projections, they would by no means be considered impressive in
comparison with most years, said Eric Beder, retail analyst at Brean Murray, Carret & Co.

"The comp and earnings 'misses and guide-downs' that were rampant during the second half of last year appear
to have been replaced, in general, with companies delivering on reduced expectations," said Howard Tubin,
retail analyst at RBC Capital Markets. "While business is far from great, the stock could still work should this
trend continue."

Analysts were expecting a gloomy month, with consumers filling up gas tanks and grocery carts instead of their
closets, but rebate spending proved to be the wild card for some retailers, especially in the discount sector.

"The rebate checks are skewed toward the moderate-income consumer, and as a result are more likely to benefit
the off-pricers, like TJX or Ross Stores, and discounters," said Richard Jaffe, retail analyst at Stifel Nicolaus.
But retail sales benefited somewhat less from early spending of rebate checks than initially expected, according
to the May ShopperScape survey conducted by TNS Retail Forward.
"May came in better than expected, but it is very clear that consumers are spending in a conservative manner as
the lift largely came from an increase in sales in wholesale, drugstore and discount sectors," said Michael
Niemira, chief economist at the International Council of Shopping Centers.

Breaking down comp-store sales, mass merchants continued to excel with an average gain of 2 percent, while
the specialty sector grew 0.3 percent. The department store channel remained weak, dropping 3.8 percent. Of the
37 retailers tracked by WWD, 18 posted positive comps and 19 were negative.

Looking at net sales for the month, discounters were up 9 percent, the specialty channel swelled 13.4 percent
and department stores fell 0.1 percent.

Beating expectations and setting the tone for the month was retail giant Wal-Mart Stores Inc., whose U.S.
namesake stores were up 4 percent, while Sam's Club comped upward 3.6 percent. Analysts were expecting
growth of 1.4 percent for the Wal-Mart stores.

The company said it saw strength in the grocery, health and wellness and entertainment segments. The home
area produced its first comp increase in more than two years.

Management expects U.S. comparable-store sales for June, excluding fuel, to be between 2 and 4 percent.

"This guidance represents both the underlying strength of our existing U.S. business and the potential benefit
from the stimulus checks," said Tom Schoewe, executive vice president and chief financial officer.

Rival Target Corp. fell 0.7 percent, hurt by weak sales in men's apparel, jewelry and accessories.

"Target has been lagging Wal-Mart for three quarters, mainly because they are proportionally less dependent on
consumables and electronics and more focused on soft goods and apparel," said Craig Johnson, president at
Customer Growth Partners.

The discounter expects June comps to land between a 2 percent drop and flat.

Off-pricers TJX Cos. Inc. and Ross Stores Inc. rose 2 and 7 percent, respectively, with both companies
exceeding expectations. The specialty sector was a mixed bag as teen and missy retailers continued to struggle
with lackluster fashion.

Value-oriented specialists Buckle Inc., Children's Place Retail Stores Inc. and Aéropostale Inc. stood out, rising
34.7, 10 and 6 percent, respectively. American Apparel Inc. was also a big winner, gaining 24 percent.

American Eagle Outfitters Inc. missed expectations, falling 9 percent, but reaffirmed second-quarter guidance.

"Their [American Eagle] day has come and gone," Johnson said. "They were very hot a couple of years ago, but
they are losing it, specifically to Aéropostale."

Aéropostale also has been credited with stealing market share from Abercrombie & Fitch Co.'s Hollister chain.
Abercrombie & Fitch posted a 1 percent decline in comps.

With a 14 percent corporate decline, Gap Inc. continued to be dragged down by its Old Navy chain, which fell
25 percent. But the company said merchandise margins for the month were significantly above last year.
And the missy sector remains in the eye of the storm, according to Johnson, with Chico's FAS Inc. tanking 16.9

"For women's retailers, May is the key month in the second quarter, traditionally at full price, which makes
Chico's 16.9 percent decline worrisome," said Roxanne Meyer, retail analyst at Oppenheimer.

But it is not only missy specialty retailers that have been hit hard — women's divisions in department stores,
from high-end Saks Inc. to the more moderate Dillard's Inc., also have been difficult.

Saks said comps dropped 8.7 percent, marred by the acceleration of its spring clearance event into the last week
of April. The luxury department store saw strength in men's contemporary apparel, shoes, accessories and
jewelry and cosmetics and fragrances, but weakness in women's classic, modern and petite apparel.

"Men's has surprisingly been robust, which is especially odd because they used to be the most economically
sensitive," Stifel Nicolaus' Jaffe said. For the second quarter, Saks expects low-single-digit comp growth,
modestly reduced year-over-year promotional activity and a slight improvement in gross margin.

Nordstrom Inc., on the other hand, saw its comps swell 10.9 percent, buoyed by an earlier start date of the Half-
Year Sale for women's and kids'. Analysts expected comps to be up 9.1 percent.

Kohl's Corp. declined 7.2 percent, in line with consensus estimates. Accessories led the company for the month,
and the men's, footwear and home divisions also exceeded company-wide results.

J.C. Penney Co. Inc. saw a 4.4 percent drop. Family footwear and women's accessories were strong, while fine
jewelry and most home categories continued to experience weaker sales.

But in the grand scheme of things, May is relatively unimportant, according to Dana Telsey, president of
the Telsey Advisory Group, a retail research and advisory firm. While predominantly a clearance month,
June is the most important of the quarter and will be more indicative of where companies

"It will continue to be a tough year," Jaffe said. "I fear a prolonged, consumer-led downturn, which will be more
like what we experienced in the mid-Seventies than what happened during the early Nineties or 2001."

In order to stay afloat, retailers will need to continue to play defensively with aggressive reductions in
inventories and firm expense controls.

But Johnson said the kids' and teens' businesses should be more stable once the back-to-school season arrives.

"Parents will cut back on purchases for themselves, but they know how important clothes are to their children,"
he said. "We may see proportionally more dollars going to the off-pricers and discounters, but people will still
be spending."

Tubin agreed, saying: "We have high hopes for July, when new assortments hit for the early fall and back-to-
school season."

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