Low Marks for Back-to-School Sales

It's a good thing the back-to-school shopping season isn't graded. Teen retailers would be embarrassed to show their scores to Mom and Dad.

The segment was among the worst-performing last month, depressing growth across the industry. Nearly all of the teen apparel retailers yesterday reported sales at stores open at least a year, known as same-store sales, declined during July when weighed against the same month last year.

Abercrombie & Fitch, which also owns Hollister & Ruehl, was down 4 percent. American Eagle Outfitters dropped 6 percent. Aeropostale plummeted 12 percent.

And that's just the A's.

"Very weak," said Michael P. Niemira, chief economist for the International Council of Shopping Centers, a trade group. "The question then is, 'What's going on beneath the surface?' "

Niemira estimated that same-store sales at teen retailers fell 6 percent last month compared with the same period last year. Meanwhile, retailers overall posted a 2.6 percent gain in same-store sales, continuing the slow but steady growth that Niemira said has characterized much of the year.

Still, several industry experts say consumer spending is softening along with the demand for housing. They expect the trend to continue through the end of the year, casting a shadow over the important holiday shopping season for the entire industry, not just teen retailers.

"Increasingly, the negatives are outweighing the positives in the economy," said Frank Badillo, senior economist for market research firm TNS Retail Forward. "That's starting to be reflected in consumer spending."

For teen retailers, the next two months will likely reveal whether July's results were a one-time miss or indicative of a more fundamental problem.

Several blamed the lackluster start to the back-to-school season on bad timing. Some big states, particularly Florida and Texas, have changed the dates of their tax-free holidays and pushed back the first day of school. The move hurt sales in July, but retailers hoped that it would boost business this month.

At Pacific Sunwear, same-store sales fell 5 percent in July compared with last year. Its banner stores, which sell surf-inspired apparel and accessories, dipped 3 percent, while its ailing urban clothing chain d.e.m.o. plunged 21 percent.

"We believe much of the weakness can be attributed to the later start of back to school in Florida and Texas, two of the company's most significant markets," Chief Financial Officer Gerald M. Chaney said.

American Eagle Outfitters executives said they had expected slower store traffic in July but that shoppers were "responding well" to the back-to-school collection. Abercrombie said that without the later start same-store sales would have grown by 2 percent.

But Niemira questioned the impact of such calendar shifts. According to a survey by ICSC and Citigroup, 20 percent of consumers planned to start back-to-school shopping in July, up from 18 percent last year. An analysis of tax-free holidays by Citigroup showed most states shifting the dates to benefit the fiscal month of July.

Niemira said he thought many retailers were actually stuck with a large inventory of summer clothing that they marked down, eating into profit. Traditionally, retailers clear summer merchandise at the start of July and introduce full-priced back-to-school items by the end of the month. But this year, discounts dominated most of the month, he said.

Still, there are always a few high achievers in every class. Zumiez, with its skate- and snow-boarding looks, posted a same-store sales increase of 10 percent last month compared to the same period last year, putting it among the top performers of all retailers reporting yesterday. The Buckle, which sells shoes and apparel, saw same-store sales jump 8 percent.

Badillo said such disparities are typical of teen retailers. Their customers are fickle and quickly ditch a store when they feel the merchandise is stale. That can make for volatile sales results that are unrelated to broader economic trends.

"Adults are more sensitive to the ups and downs of the economy," he said.

The picture was brighter for other segments: Department stores posted strong results, with Saks Inc. leading the way with same-stores sales growth of 15 percent in July. Neiman Marcus Group jumped 8 percent. And same-store sales at J.C. Penney were up 11 percent. The department store chain began rolling out school-ready merchandise in the first week of July.

"The company maintains its status as a key back-to-school destination," Citigroup analyst Deborah L. Weinswig wrote in a recent research note.

At Macy's, same-store sales continued to lag, dipping 1 percent. Kohl's sales were flat.

Wal-Mart said it was "encouraged" by early positive signs in its back-to-school merchandise but warned that sales of apparel and home goods overall were slow last month, a trend expected to last through the third quarter. Same-store sales at Wal-Mart and its warehouse club chain Sam's Club were up 1.9 percent. Rival Target reported a same-store sales increase of 6 percent.

Todd Slater, an analyst with Lazard Capital Markets, predicted demand would grow in the coming weeks and said teen retailers shouldn't be rattled by last month's low numbers. About half of consumers said they planned to do their back-to-school shopping this month, and 28 percent are waiting for September, according to the ICSC-Citigroup survey.

"It's always better to get off to a good rather than bad start," he said. But "if teen retailers push the panic 'markdown' button, margins could come under more pressure than planned."