U.S. apparel chains top estimates

By Martinne Geller

NEW YORK (Reuters) - Apparel retailers, including Chico's FAS Inc (CHS.N) and American Eagle Outfitters Inc (AEO.N), posted stronger-than-expected quarterly results on Wednesday, as tight cost and inventory management offset sluggish sales.

The news sparked a stock rally in the sector that lost steam as the overall market declined, leaving only a few gainers such as Chico's and Charming Shoppes Inc (CHRS.O).

Expectations have fallen for apparel retailers and manufacturers, which have been among the hardest hit sectors in the recession as consumers trim spending for anything other than essentials like food.

"The bar was set too low -- no one bought anything for six months," said Storehouse Partners analyst Patricia Edwards. "If you lower the bar far enough, anyone can jump over it."

To mitigate the ongoing impact of weak sales, retailers have cut inventories and sharply reduced expenses.

While consumer confidence has improved, unemployment continues to rise, credit remains tight and home values continue to fall, keeping pressure on consumer spending, which makes up more than two-thirds of the U.S. economy.

"We are now two months into fiscal 2010 and there is still tremendous uncertainty regarding how long the current retrenchment in consumer spending will last or how much additional deterioration in personal consumption may occur," said Polo Ralph Lauren Corp (RL.N) Chief Financial officer Tracey Travis.

PROFITS TUMBLE; OUTLOOKS REMAIN CAUTIOUS