Blog: Leonie BarrieWeak economy worries persist

Leonie Barrie | 24 May 2010

Several US clothing retailers last week posted stronger first quarter earnings, helped by rising sales and margins. The results were, of course, boosted by cost cuts, tight control of inventories, and easy comparisons with weak sales last year - and many firms cautioned that the still weak economy is likely to hamper consumer spending going forward.

Top line growth across all its brands prompted clothing specialist Gap Inc to raise its earnings guidance for the year ahead after posting a 40% jump in first quarter profit. Crucially, the company continued to build upon the momentum in North America, and said it is now in a strong position to execute on its international and online investments.

Wal-Mart Stores was among those warning of a challenging sales environment in the US after posting another fall in same-store sales in its domestic operations.

The retail giant said customers are still worried about their personal finances, unemployment and higher fuel prices as it booked a 1.4% drop in first quarter same-store sales at its US Walmart chain. It also admitted that apparel was one of its biggest underperformers in the first quarter.

Los Angeles-based American Apparel is never far from the news, but last week caught the market by surprise when it posted a somewhat stunted trading statement, sending its shares tumbling. The firm not only reported a slump in same-store sales for the first quarter - but also says it may have trouble complying with the terms of an existing loan.

The company, which doesn't expect to file its earnings until the end of next month, saw operating losses widen to $17.6m from a loss of $3.9m last year. And while first quarter sales rose 6.6%, its same-store sales fell 10%.

Over in the EU, the row over anti-dumping duties on leather footwear imports from China has taken another turn after a World Trade Organization (WTO) dispute panel was set up to deal with the spat. China has complained the anti-dumping duties breach global rules and says the way the EU has collected the anti-dumping duty has been discriminatory.


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