August 4, 2011 / 4:13 AM / 7 years ago

Discounts help chains in July; tough battle ahead

NEW YORK (Reuters) - Deep discounts brought shoppers to malls and helped many retail chains report sales gains in July, in an early sign that consumers will keep demanding bargains in the back-to-school season.

Shoppers browse items in an aisle at Target in Falls Church, Virginia May 28, 2010. REUTERS/Kevin Lamarque

The 25 chains tracked by Thomson Reuters reported a 4.4 percent gain in sales at stores open at least a year. That just met analysts’ expectations for July, the month that kicks off the second-biggest selling season of the year after Christmas.

Most retail stocks fell. The Standard & Poor’s Retail Index .RLX was down 2.0 percent at midday, while the broader Standard & Poor’s 500 Index .SPX fell more steeply at 2.3 percent.

The back-to-school selling season has important implications as consumer spending accounts for about 70 percent of the U.S. economy. The July sales numbers did little to dispel concerns about the economy, which barely grew in the first half of 2011.

“Back-to-school (sales) will be an increase over last year, but it will be a hard-fought increase for retailers,” said Joel Bines, a managing director at advisory firm AlixPartners. “This year’s promotional activity may end up being heavier than last year.”

Consumers face not only a tough economy but also a myriad of choices.

“August is the month that price increases from higher cotton and petroleum prices will be felt,” Bines said. “Retailers won’t want to wait too long to see if consumers will balk at higher prices.”

Michael Niemira, chief economist of the International Council of Shopping Centers, also urged investors not to get too optimistic over the sales gains in July, which came in below his expectations of 4.5 percent to 5.5 percent, excluding higher gasoline prices.

“Overall, there’s a lot of worry where the industry and economy are heading,” Niemira said.

The ICSC is expecting same-store sales to rise 4 percent to 5 percent in August.

While sales held up “relatively well” for the quarter that ended in July, “the key question will be whether or not demand is starting to slow,” Goldman Sachs analyst Michelle Tan wrote in a research note.

“It’s a very Darwinistic environment in retail right now,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors in Rochester, New York.


Warehouse clubs Costco (COST.O) and BJ’s (BJ.N) and luxury chain Saks SKS.N posted some of the biggest sales gains in July, highlighting the bifurcation in the U.S. economy. Department store and other retailers that cater to the middle were among those that disappointed.

“The folks that are doing well economically are going to continue to spend at a pretty good clip, and the families that have less means are going to continue to pick and choose and only spend on what they need versus what they want,” said Alison Paul, leader of Deloitte’s U.S. retail practice.

The July figures made some chains, such as Target Corp (TGT.N), optimistic about demand heading into the second-biggest selling period of the year after Christmas.

“Back-to-school sales are off to a solid start, contributing to our confidence in the strategies we have in place and our ability to execute them,” Target Chief Executive Officer Gregg Steinhafel said on Thursday.

The discounter reported a better-than-expected 4.1 percent rise in same-store sales and forecast a low to mid-single-digit percentage increase for August.

“My mom is paying the bills, and they’re telling me that they need to cut back on me spending all this money on me buying clothes,” said Ed Rush, 15, who was shopping at a Target store in Chicago.

Costco Wholesale Corp reported a 10 percent rise in total July sales at stores open at least a year, beating the analysts’ average estimate of an 8.6 percent increase.

BJ’s Wholesale Club reported a 9.2 percent same-store sales rise, while analysts only expected 6.6 percent growth.


U.S. consumer sentiment fell in July to its lowest point in more than two years as anxieties over stagnant wages and unemployment deepened, a survey showed. [nN1E76S0T1]

That may have shown up in same-store sales from retailers like Kohl’s Corp (KSS.N) and Gap Inc (GPS.N), which disappointed investors by posting big declines.

The apparel sector reflected the mixed fortunes for retailers in July.

Teen-oriented chains Hot Topic HOTT.O and Wet Seal WTSLA.O blew past estimates, with Hot Topic forecasting a smaller quarterly loss than Wall Street was expecting.

But rival Zumiez Inc (ZUMZ.O) missed July sales expectations, blaming the weakness on lackluster sales of accessories.

Same-store sales reports capture only part of the retail economy. Industry leader Wal-Mart Stores Inc (WMT.N) and other major retailers such as Best Buy Co Inc (BBY.N) and (AMZN.O) do not report monthly sales.

Reporting by Dhanya Skariachan and Roy Strom in New York, Jessica Wohl and Eunju Lie in Chicago, Alistair Barr in San Francisco, Abhishek Takle, Arpita Mukherjee, Meenakshi Iyer and Mihir Dalal in Bangalore; Editing by Bernard Orr and Lisa Von Ahn

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