Cautious shoppers choosing bargains

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NEW YORK --- People aren't just shopping more at Family Dollar. They're buying the lowest-priced stuff on its racks.

Pizza Hut was left hungering for sales as consumers sought better fast-food bargains.

Shoppers' financial strain is clear in corporate financial reports this week.

"I've never seen a softer U.S. consumer than what we're seeing today, in my career," said David C. Novak, the chairman and CEO of Yum Brands Inc., which owns Pizza Hut, KFC and Taco Bell.

It's bad news for investors looking for companies to show strong revenue growth after several quarters of beating earnings forecasts by slashing costs. The only glimmer of hope was a pickup in demand in other countries, suggesting any recovery will be led by foreign shoppers.

Yum's 18 percent profit growth in the third quarter was largely fueled by business in China.

Yum's sales were dragged down largely by Pizza Hut. The chain suffered a 13 percent drop in sales at stores open at least a year, in a category where sales have been nearly flat. Pizza Hut charges more for pizza and other items than rivals such as Domino's and Papa John's. Consumers even spent less at Taco Bell, which is more value-oriented. Sales fell 2 percent in the third quarter.

"It's the first time where I've actually seen research show that people are actually cooking more at home" than they say they intend to, Mr. Novak added.

Costco reported new members are signing up because they can use food stamps at some stores.

Family Dollar, whose profit rose 13 percent in its most recent quarter, said store-brand products are increasingly popular.

Shoppers "are dipping their toes in the water," said Ken Perkins, the president of retail research firm Retail Metrics. "The problem is American consumers are tapped out."


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