Aug. 7 (Bloomberg) -- Wal-Mart Stores Inc. and Costco Wholesale Corp. said July sales rose as higher food and fuel costs prompted shoppers to buy back-to-school items at discounted prices.

Wal-Mart declined 3.3 percent in early New York trading after saying sales may slow in August. The world's largest retailer said July sales at stores open at least a year gained 3 percent. Costco posted a 10 percent increase, while Limited Brands Inc., the owner of the Victoria's Secret lingerie shops, said sales fell.

The beginning of back-to-school shopping and the suspension of sales taxes in some states helped spur purchases. Consumers favored discounters and warehouse clubs including Wal-Mart, Costco and TJX Cos.' Marshalls chain as gasoline near $4 a gallon, inflation and seven months of job losses caused shoppers to tighten the purse strings.

``This is a continuation, even more pronounced, of the flight to value,'' Craig Johnson, the president of Customer Growth Partners LLC in New Canaan, Connecticut, said yesterday in an interview. ``The women's retailers and the department stores are in the ditch.''

July comparable-store sales may have risen 2 percent to 3 percent, the International Council of Shopping Centers predicted this week. Sales-tax breaks in 11 states and Washington, D.C., helped bolster back-to-school purchases toward the end of the month, the New York-based trade group said on Aug. 5.

Best Measure

Comparable-store sales are considered by some investors to be the best measure of results because they exclude the effect of openings and closings in the past year.

Wal-Mart had predicted sales gains of 2 percent to 4 percent in July. Analysts on average estimated a 3.3 percent increase, according to Retail Metrics LLC. Consumers purchased groceries, flat-panel televisions and video games, while apparel and home goods were ``slightly negative.''

``We continue to see improvement in our customer traffic relative to last year,'' Wal-Mart's U.S. chief Eduardo Castro- Wright said in the statement. For August, the company projected slower sales, with to a 1 percent to 2 percent gain.

Wal-Mart fell $2.01 to $58.75 at 8:26 a.m. New York time in trading before the open of the New York Stock Exchange. The shares gained 28 percent this year through yesterday, while the 29-member Standard & Poor's 500 Retailing Index declined 10 percent.

Slow Back-to-School

Back-to-school purchases from July through September, retailing's second biggest season after Christmas, this year may climb 1 percent to $38.5 billion, according to the ICSC. That would be the slowest growth since 2001, the group said.

Teen retailers start setting out their back-to-school lines in July, said Howard Tubin, a retail analyst at RBC Capital Markets in New York. August and September are more important back-to-school shopping months than July, he said on Aug. 4.

Consumer inflation in June climbed 0.8 percent, the most since September 2005, the Commerce Department said Aug. 4. Last month, the U.S. unemployment rate rose to 5.7 percent, the highest in more than four years, the Labor Department said Aug. 1. July consumer confidence stayed near the lowest level since 1992, according to Conference Board data released last week.

Unleaded gasoline cost an average of $3.86 a gallon on Aug. 5, 36 percent more than a year earlier, according to the AAA motor club.

Mall traffic was unchanged in the first three weeks of July, compared with a 7 percent decline in 2007, according to Todd Slater, a retail analyst at Lazard Capital Markets LLC in New York. Department and mall specialty stores didn't appear to benefit in sales, he wrote in an Aug. 4 research note.

`Lots of Lookers'

``Lots of lookers, but few buyers,'' Slater wrote. ``For mid-tier and better department stores, it's downright ugly.''

Costco, the largest U.S. warehouse-club chain, climbed 10 percent. Analysts expected a 7.9 percent gain, according to Retail Metrics, a Swampscott, Massachusetts-based consulting firm.

Limited Brands' sales fell 5 percent, less than some analysts' estimates. Children's Place Retail Stores Inc., another mall-based chain, said same-store sales were unchanged, while analysts projected a 7.4 percent gain.

Teen retailer Pacific Sunwear of California Inc.'s comparable-store sales fell 4 percent, while analysts predicted a 0.9 percent gain. Yesterday Zumiez Inc. and Hot Topic Inc. reported sales that dropped more than estimates.

Sears Holdings Corp. and Macy's Inc., the two biggest U.S. department-store chains, don't report monthly same-store sales.

To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.

Last Updated: August 7, 2008 08:29 EDT