Wal-Mart, Kohl's earnings top forecasts

Cutting their inventory helped both Wal-Mart Stores Inc. and Kohl's Inc. earn more in the second quarter than Wall Street expected, but neither retailer sees consumer spending rebounding in the crucial coming months.

They said as they reported their earnings Thursday that they're preparing for American consumers' newly adopted frugality to be the new reality — a reality that could hurt them less than many retailers but may not be comfortable for any prolonged period.

Wal-Mart saw an unexpected drop in same-store sales at its U.S. stores for the quarter. Spokesman John Simley said the quarterly decline is believed to be Wal-Mart's first ever, and the figure would have been flat without food price drops. Same-store sales is a key industry metric comparing sales at stores open more than a year with the same period a year earlier.

"Our customers are more disciplined in their spending," Mike Duke, Wal-Mart's president and chief executive, told investors during a prerecorded call Thursday. "There is a new normal now where people are saving more, consuming less and being more frugal and thoughtful in their purchases."

Wal-Mart, the world's largest retailer, noted that its financially strained shoppers keep buying less-expensive store products and smaller sizes. Customers also are paying for more of their purchases in cash or with debit cards than with credit cards, said Tom Schoewe, Wal-Mart's CFO.

Kevin Mansell, president and CEO of Kohl's, told The Associated Press that retailers should lower their expectations for holiday shopping.

"Last holiday was horrible, but our attitude is that last holiday is the new reality," said Mansell. If things go better this year, Kohl's can quickly adjust to increasing demand, he added.

The sobering assessment of consumer spending came as the Commerce Department reported that retail sales fell 0.1 percent last month, underscoring worries about when the U.S. will recover from the worst recession since World War II.

Consumer spending accounts for 70 percent of all U.S. economic activity. For retailers, sustained lower spending levels may result in more consolidation. And shoppers may see fewer stores to choose among and fewer styles in those stores as merchants keep inventory lean.

"You will see many more closing of suppliers, stores and malls," said retail consultant Burt P. Flickinger III, who predicts five more years of frugality. "Stores can cut expenses so long. They have to see increased sales."