July sales upside may bode well for back to school
NEW YORK (MarketWatch) -- Against the shadow of macroeconomic concerns, consumers delivered better-than-expected July sales to U.S. retailers, showing that they still have spending power when given the right incentives.
Industrywide, July same-store sales in an index of 20 retailers rose 4.3%, nearly triple the 1.5% consensus analyst estimate, Thomson Reuters data showed. More than three-quarters of chains exceeded expectations. Read "July's mixed blessing for retailers."
Teen retailers were the one weak point and the only segment that posted a decline. Shares of
One of the biggest upside surprises came from the largest U.S. clothing chain,
Gap North America sales surged 13%, beating the 6.4% estimate and marked their sixth straight monthly increase. Its other divisions also posted positive surprises. The company forecast second-quarter profit of 47 cents to 48 cents a share, beating the 38-cent average estimate in a FactSet poll. Gap shares surged 10%.
Gap has been able to excite shoppers with on-trend fashions such as colored denim, analysts said.
"Compelling merchandise and effective promotions across all divisions helped to drive strong traffic and lift sales," said Stifel, Nicolaus & Co. analyst Richard Jaffe, adding results bode well for solid back-to-school sales at both Gap and Old Navy.
Good portent for back to school
While July is the smallest month of retailers' fiscal second quarter (about 30% of the quarter's sales) and mostly a clearance-driven period, the mostly better-than-expected results bode well for back-to-school, the industry's second-biggest selling period after the Christmas holiday, analysts said. In June, retailers posted their worst results in three years. See June sales story.
"We are far more encouraged about [back-to-school] than we were coming out of June," said Ken Perkins of Retail Metrics.
"We still think it's going to be very competitive and highly promotional, but the strength in July suggests consumers may follow through" after surveys suggested shoppers would spend as much as or more than they did last year.
Mid-tier department store chain
On a national scale, discounter
"Guests continue to respond to our innovative merchandising, remodel program and 5% [discount given on Target cards], driving healthy increases in traffic and sales in a consumer environment that remains quite challenging." said Target Chief Executive Gregg Steinhafel.
Victoria's Secret parent
"Companies with compelling and differentiated assortments are thriving," said UBS analyst Roxanne Meyer.
For both TJX Cos. (TJX) and
The results speak "to our on-point fashions and brands at great values and wide customer demographic appeal," said TJX Chief Executive Carol Meyrowitz, adding traffic was up "substantially" at all divisions from T.J. Maxx to Marshalls.
"We sensed optimism related to [back-to-school] in our conversations with the companies," said UBS analyst Michael Binetti, referring to his department-store coverage universe. "Macy's is poised to reaccelerate sales when the consumer has a clear 'call to action' to shop."
He said he's cautious on his outlook for Saks because of its high exposure to New York, where declining European tourist spending has hurt retailers including
Abercrombie's negative surprise
With July being the hottest in more than 21 years, shoppers flocked to the comfort of air-conditioned malls and helped retailers clear out excess summer merchandise, analysts said. Still, they cautioned that better sales may come at a cost to profitability and warned a better gauge of underlying back-to-school demand will take place in August instead.
For July, consumer confidence picked up after four straight months of declines. Several back-to-school surveys have forecast a pickup in spending. For instance, a National Retail Federation poll showed average spending is likely to rise at its fastest pace in at least 10 years.
But several teen retailers don't look to be the winners of back to school business. Abercrombie (ANF) late Wednesday reported that second-quarter same-store sales dropped 10%, reflecting declines of 5% in the U.S. and 26% overseas. A&F Market Pulse.
The company also slashed its full-year outlook by a dollar and forecast second-quarter earnings of 15 cents to 18 cents a share, missing the 25-cent analyst estimate. Abercrombie, which has been hurt by the debt crisis in Europe, also is slowing its new international Hollister and namesake chain's flagship openings.
"Macroeconomic conditions remained very challenging during the quarter, particularly in Europe but also increasingly in the U.S.," said Abercrombie & Fitch Chief Executive Mike Jeffries.
Winners and losers in the teen sector
At A&F's lower-priced rival, Aeropostale Inc., (ARO) second-quarter sales unexpectedly fell 1%. Aeropostale, which blamed disappointing store traffic, said it would break even for the quarter, compared with its prior estimate of profit of 3 cents to 5 cents a share.
Abercrombie "is being left behind by competitors like (American Eagle and Aeropostale) who are placing a significant bet on the shift in consumer tastes toward a more fashion focus as opposed to the typical basics offering," said J.P. Morgan analyst Brian Tunick.
Music- and movie-inspired teen retailer
At action-sports retailer
The return to the lower-priced and trend-driven model, a huge success before, "should please its core customer base," said Brean Murray Carret & Co. analyst Eric Beder.