2nd UPDATE: Retailers' July Sales Coming in Mixed, With Teens Weak

--July showing is mixed

--Target, Macy's solid

--Teen retailers weak

(Updates to add final tally in 15th paragraph and additional information about Target in 7th paragraph and Nordstrom in 12th paragraph)

 
   By Karen Talley 
 

Same-store sales for July were mixed for U.S. retailers, with Target Corp. (TGT) and Macy's Inc. (M) showing strength, while teen retailers like Wet Seal Inc. (WTSLA) and Buckle Inc. (BKE) had a soft start to the back-to-school season.

July is a transitional month and sales are often the year's second smallest, behind January. Like January, July is mostly a time for clearance as retailers shift from summer merchandise to back-to-school and fall apparel. It also is the last month of the second quarter for most retailers.

"The month's results matter because they represent the latest read on consumer spending patterns ahead of the very important back-to-school selling period," said Charles Grom, retail analyst from Deutsche Bank.

Average back-to-school spending for a person with school-age children is projected to jump to $688 this year, according to a National Retail Federation survey last month. That is up from $603 in last year's survey. Overall, spending for children ages 6 to 17, or K-12, is expected to total $30.3 billion.

One-third of consumers in a Deloitte survey said they plan to spend more on back-to-school merchandise this year, but not because they are feeling magnanimous. More than half cite higher prices as their reason for doing so. Many respondents believe the economy is in a recession, with food prices, higher energy prices and the job market primary concerns, the Deloitte survey said.

"Given the uncertain macro backdrop and several data points indicating recent global slowdown in Europe and Asia, expectations are low," said Randal Konik, retail analyst at Jefferies & Co.

Target posted a 3.1% rise in same-store sales, when 2.7% was expected. The solid number came amid "a consumer environment that remains quite challenging," Chief Executive Gregg Steinhafel said. While the big-box retailer's same-store sales were strongest in food--which experienced a low double-digit increase--health and beauty, and to a lesser extent apparel, the company said both home and hardlines experienced low single-digit declines.

Macy's same-store sales grew 4.1% when 3.2% was projected. "Despite some challenges from a sluggish macroeconomic environment and a temporary disruption of sales from the remodeling project at our Herald Square flagship store in New York City, the spring season met our expectations," Chief Executive Terry Lundgren said.

Kohl's Corp. (KSS) had its first comparable-store sales growth in four months, posting a 1.7% gain when expectations were for a flat showing. "We have made significant progress in improving inventory levels as we enter the back-to-school season and believe we have the appropriate mix of both basics and fashion," said Chief Executive Kevin Mansell. By line of business in July, men's was the strongest category for a second consecutive month, women's was essentially flat and children's was slightly negative.

Gap Inc. (GPS) posted a strong 10% increase in July same-store sales, when a 3.8% rise was expected. All three North American brands--Gap, Banana Republic and Old Navy--reported growth while international comparable-store sales grew 4%, exceeding expectations for a 1.6% drop.

Off-price retailer TJX Cos. (TJX) posted a 7% increase in same-store sales ahead of expectations for 5%, and raised its second-quarter and full-year earnings per-share guidance.

Among upper-end retailers, Saks Inc. (SKS) reported a 3.5% rise when 4% was expected, and Nordstrom Inc. (JWN) posted a 0.9% gain when a 2.7% decline was projected. Nordstrom's July results were better than expected despite the timing shift into one week of August of the company's annual anniversary sale, which usually is held completely in July.

Limited Brands Inc. (LTD) reported a comparable-store sales increase of 12%, when 6% was expected and raised its earnings expectations for the second quarter. The operator of Victoria's Secret and Bath & Body Works also declared a $1 special dividend.

Costco Wholesale Corp. (COST), which reported Wednesday, posted 8% growth in U.S. same-store sales when gasoline sales are backed out. Analysts were looking for 4.7%.

The 18 retailers tracked by Thomson Reuters reported a 4.6% rise in same-store sales when 3.1% was expected for July. The figure compares with 4.8% growth last year.

Zumiez Inc.'s (ZUMZ) July same-store sales grew 7.5%, when an 8.5% increase was expected. The retailer, which sells apparel designed for action sports like snowboarding and skateboarding, has seen its earnings and revenue grow in recent quarters. But its June same-store sales also came in just shy of analysts' expectations.

Fellow teen retailer Buckle posted a 0.1% drop in same-store sales when a 1.2% decline was expected. And Wet Seal posted a 15.6% drop in same-store sales when a 14% fall was expected. "The second quarter ended with weak July sales results," Wet Seal Chairman Hal Kahn said. "We believe the company's performance in recent quarters is due in part to a move away from some of our fast fashion merchandising practices at Wet Seal that had been successful in the past."

"It's too early to say the misses mean a bad back-to-school, but it's not a cause for optimism," said Joel Bines, head of the retail practice at AlixPartners.

--Anna Prior contributed to this article.

Write to Karen Talley at [e-mail]

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