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Lower income shoppers still feeling pinched, U.S. retailers say

A woman shops at the Macy's store at a mall in a Denver suburb May 16, 2008. REUTERS/Rick Wilking
A woman shops at the Macy's store at a mall in a Denver suburb May 16, 2008. REUTERS/Rick Wilking

By Phil Wahba and Jessica Wohl

NEW YORK/CHICAGO (Reuters) - Cooler than usual weather and belt-tightening by shoppers still struggling with higher payroll taxes and stubborn unemployment dampened sales last quarter at chains from Macy's Inc to Wal-Mart Stores Inc .

Wal-Mart reported a 1.4 percent drop in sales at Walmart U.S. stores open at least a year, and gave a profit forecast for the second quarter that missed Wall Street estimates. The world's largest retailer expects same-store sales at its namesake U.S. discount chain to be up 2 percent at best in the current quarter.

Kohl's Corp , a department store chain that caters to lower-to-middle income families, posted a 1.9 percent decline in same-store sales. Last week, J.C. Penney Co Inc , dealing with some self-inflicted problems, said its same-store sales fell 16.6 percent. Dillard's Inc reported a 1 percent increase.

"We are seeing some weakness amongst our more budget-conscious, what we call deal-hunting, customers," Macy's Chief Financial Officer Karen Hoguet told analysts this week.

Macy's first-quarter same-store sales rose 3.8 percent, slightly below Wall Street's expectations.

Though splurging on more fashionable clothing may be on the rise, retailers are noting that shoppers' top priority is buying basics at a good price.

"There's going to be some choppiness" in any recovery of consumer demand given how easy it is to spook shoppers, said ITG analyst John Tomlinson.

Wal-Mart has many shoppers who live paycheck to paycheck. The company's CFO Charles Holley said his customers' top concern is still jobs, followed by food costs and gas prices.

Kohl's said sales of merchandise by fashion designer Derek Lam, who also sells pricier clothes at luxury chain Neiman Marcus , were disappointing in April as customers moved toward basics.

"We have to continue to improve the quality of our merchandise and offer items at a great value," Kohl's CEO Kevin Mansell told analysts.

WEATHER WOES

Sales at several U.S. chains during the first quarter were hurt by cold weather that prompted many shoppers to delay purchases of spring clothing and sporting goods.

"Though no one likes to talk about weather, it was a real factor across the United States," said Mike Duke, CEO of Wal-Mart Stores.

The problem was visible in the company's own backyard. In Bentonville, Arkansas, where Wal-Mart is based, daily May temperatures typically reached highs in the 70s. Earlier this month, the area was hit with snow.

(Reporting by Phil Wahba in New York and Jessica Wohl in Chicago. Editing by Christopher Wilson)

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