Retailers don't see back-to-school boost, report spotty sales for July

By Ylan Q. Mui
Washington Post Staff Writer
Friday, August 6, 2010

Cautious consumers translated into spotty sales for national retailers in July, according to data released Thursday, potentially signaling a tough back-to-school season for the industry.

Back-to-school is the second-biggest season of the year for retailers and often serves as a bellwether for the crucial holiday months. Industry experts warned that recession-minded shoppers are putting off their purchases until the last minute and that July's uneven performance may be an anomaly. But it also coincides with a broader slowdown in consumer spending as government stimulus programs fade and the labor market remains tight. New weekly jobless claims filed last week rose 19,000 to 479,000, according to government figures released Thursday.

"I believe we hit a soft spot," said Jack Kleinhenz, chief economist for the National Retail Federation, a trade group. "The consumer is really cautious. I'm not expecting them to really break out into any real aggressive purchasing."

According to the International Council of Shopping Centers, a trade group, national chain stores reported a 2.8 percent increase in July sales at established stores compared with a year ago. The so-called "same-store sales" are a key barometer of a company's health, and the trade group's chief economist, Michael P. Niemira, said the industry's performance was dragged down by retailers unloading summer clearance merchandise and delayed back-to-school shopping.

In fact, several teen-targeted retailers missed analysts' expectations. Aeropostale, which had enjoyed strong sales with its focus on value, reported July same-store sales rose only 1 percent from last year, compared with a 6 percent jump in July 2009. The company also indicated its second-quarter earnings would be at the low end of its guidance of 45 to 48 cents per share because of a "challenging retail environment." At Wet Seal, sales plunged 4.3 percent, while Hot Topic dropped 9 percent.

Part of the problem is that the retail industry was overly optimistic when ordering summer merchandise six months ago, said Eric Beder, associate director of equity research at Brean Murray, Carret & Co. As pent-up demand and a stabilizing economy pumped up consumer spending, retailers began restocking their warehouses in anticipation of a turnaround. Now the recovery seems to have stalled and retailers are again resorting to discounting, which eats into their profits.

"They got too aggressive, and now they're kind of feeling the pain from that," Beder said.

Still, some retailers pulled off impressive results. Macy's reported its sales jumped 7.3 percent in July, and the retailer just launched a new clothing line for teens designed by pop icon Madonna and her daughter Lourdes. The company said its upscale Bloomingdale's stores continue to perform well. Other luxury retailers also posted strong sales: Saks rose 6.4 percent, and Neiman Marcus soared 12.3 percent. Nordstrom recorded a 7.6 percent increase, but that was below analysts' expectations.

Value players were also among July's winners. Kohl's reported its sales jumped 4.1 percent from a year ago and was so encouraged by the results that it raised its earnings guidance as much as 10 cents, to 80 to 82 cents per share. Target was up 2 percent.

Wal-Mart, the world's largest retailer, does not report month-by-month sales, leaving a substantial hole in the industry's monthly numbers.

Perhaps the best news for retailers this back-to-school season is that while consumers remain cautious, new research shows they are not under as much stress as last year. A survey by consumer research firm NPD Group released Thursday found that 38 percent of shoppers plan to spend less on back-to-school items this year, down from 44 percent last year. About 40 percent of shoppers say they will spend the same amount of money, and 22 percent plan to buy more.

But some of that spending may come at parents' expense. According to a survey by consulting firm Accenture, 64 percent of parents reported spending less on themselves during back-to-school season to ensure their kids get what they need.

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