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Thursday August 9 1:02 PM ET

By Ellis Mnyandu

NEW YORK (Reuters) - U.S. shoppers, strapped by a weakening economy and rising layoffs, again turned to discounters in July as they

sought bargains on air conditioners, back-to-school items, shampoos and food, leaving apparel and department store chains pinched by stunted sales. Even though July is traditionally a clearance month, department stores and specialty retailers struggled to entice shoppers with markdowns, causing apparel chains like Gap Inc. -- the nation's largest clothing retailer, to post disappointing same-store sales.

Youth-oriented apparel retailer Abercrombie & Fitch also spread the gloom, reporting a greater-than-expected same-stores sales drop of 14 percent. ``There's still consumer apprehension out there as people are losing jobs,'' retail analyst Daniel Binder at Buckingham Research Group said. ``It appears discounters had a value orientation,'' he added.

Slight relief from the initial tax rebate checks of President Bush's $38 billion tax cut deal helped discounters like Wal-Mart Stores Inc. to drive sales as shoppers sought savings. Brokerage house Lehman Brothers said its same-store sales index rose 3.3 percent in July from 4.4 percent a year ago, and compared with a 3.2 percent rise in June this year.

Lehman Brothers' retail industry analyst Jeffrey Feiner said the economy remained paramount in the minds of consumers. ``The good news is there were less earnings revisions, but you still got to be cautious,'' he said. ``The upper-end retailers, the department stores are

all being impacted by some slowing in consumer spending given consumer's preoccupation with the large number of layoffs being

announced,'' Feiner added.

TAX REBATE BOOST

Wal-Mart, the nation's largest retailer, said same-store sales in July rose 6 percent from a year ago, above its expectations. Analysts' estimates had forecast a rise of 4 percent to 8 percent against a year-earlier rise of 6.5 percent. The discounter said it saw shoppers cashing up to 25 percent of their tax rebate checks. Frequent purchases with rebate checks included

televisions, DVD players, cameras and computers.

At its Sam's Club's warehouses, Wal-Mart said customers were spending about 80 percent of the tax cut money, adding it expects same-store sales in August to rise 4 percent to 6 percent. It repeated second-quarter earnings projections, similar to Wall Street's estimates, of 37 cents a share.

Wal-Mart shares traded down 41 cents at $52.12 on the New York Stock Exchange in the morning, in line with broader weakness in the market. The Dow Jones Industrial Average Index fell 41.47 points or 0.39 percent, to 10,251.26.

The Standard & Poor's Index of retail stocks fell 2.66 points or 0.29 percent to 899.95. Kmart Corp., the nation's No. 2 discounter, also posted higher July same-store sales, up 3.4 percent, slightly above analysts' estimate range of 1 to 3 percent. Kmart traded up 6 cents or 0.46 percent at $13.10.

Wholesale club operator Costco Wholesale Corp. posted same-store sales up 4 percent, at the lower-end of analysts' estimates and the company's own expectations. Binder said Costco's sales appeared to have been slowed as consumers searched for clearance sales at other discounters like Kohl's Corp.. Kohl's posted same-store sales up 14.3 percent, compared with analysts' projections of a rise of 4 to 8 percent. Target, the No. 3 U.S. discounter, had same-store sales up 4.6 percent, slightly above expectations despite a 7.2 percent drop in same-store sales at its Marshall Field's unit.

TOUGH RETAIL ENVIRONMENT

Apparel chain Abercrombie & Fitch said it still expects to meet or slightly exceed its previous second-quarter earnings estimate of 22 cents a share despite a challenging retail environment. Analysts estimates range from 22 to 24 cents, with a mean at 23 cents, according to research firm Thomson Financial/First Call.

Despite a challenging environment, for the third and fourth quarters, the company said it was ``comfortable'' with 10 percent earnings per share growth. ``Unquestionably, the retail environment remains very difficult. Although we are disappointed with our sales results for July, I am pleased that our tight control of inventory, markdowns and expenses has enabled us to continue to improve our earnings,'' Mike Jeffries, Abercrombie chairman and chief executive, said.

Analysts had expected Abercrombie to report same-store sales decline of 4 to 6 percent. Its shares fell 17.54 percent or $6.34 to $29.80 in morning trading. Gap also posted worse-than-expected same-store sales, down 12 percent. The San Francisco-based company said it had eliminated 1,300 corporate positions in July in a bid to curb costs.

Analysts had expected a same-store sales decline of 4 to 9 percent for Gap, whose shares fell 2.83 percent or 77 cents to $26.38 early on

Thursday. Among department stores, Federated Department Stores Inc., parent of Macy's and Bloomingdale's, said same-store sales dropped 4.2 percent in July from a year earlier. Analysts' had forecast a sales decline of 4 to 6 percent against a year-ago increase of 1.6 percent.

GLOOMY PROSPECT

Saks Holdings Inc. which reported that same-store sales in July fell 4.8 percent in July. The retailer, which operates the luxurious Saks Fifth Avenue stores, said the decline generally reflected continued weak consumer demand.

Saks warned that slow sales and a decline in gross margins will lead it to report a wider-than-expected loss, before items, of between 28 cents to 32 cents for the second quarter. Saks shares were steady at $10.50 on the New York Stock Exchange.

Analysts loss estimates for Saks ranged from 7 to 20 cents a share, with consensus at 14 cents, according to First Call. Limited Inc., which owns about 84 percent of Victoria's Secret parent company Intimate Brands Inc., reported same-store sales in July down 6 percent. But J.C. Penney Co. Inc., which operates department stores and the Eckerd drugstore chain, bucked the lower sales trends, reporting same-store sales for its department stores up 2.2 percent and forecast slightly better second-quarter results. But its shares traded just up 2 cents

at $27.23.