UPDATE: Retailers See Tough Start to Back-to-School; July Results Miss Views

--Retailers' July same-store sales rise 3.3%

--Teen retailers have difficult July

--Gap, Costco same-store sales miss expectations

(Updates with final same-store sales figures and results from Gap)

 
   By Anna Prior 
 

Retailers, particularly those that cater to teenagers, had a difficult start to the second half of the year and critical back-to-school season, as July sales came in below expectations.

"Mall traffic trends overall were just weak in July," said Barclays specialty retail analyst Matthew McClintock, adding the month was highly promotional as retailers tried to entice what shoppers there were.

Although retailers are still clearing through some leftover spring clearance inventory, July offers the first look at how the companies are faring in the back-to-school season, which can typically be an indicator of holiday performance.

While retailers posted strong results last year for July and back-to-school, this year is a different story.

Average back-to-school spending for a person with school-age children is projected to fall to $634.78 this year, according to a National Retail Federation survey last month. That's down from $688.62 in last year's survey. Overall, spending for grades K-12 is expected to total $26.7 billion, compared with $30.3 billion last year.

The nine retailers tracked by Thomson Reuters reported 3.3% growth in July same-store sales, or sales at stores open more than a year. This compares with analysts' expectations for 3.9% growth and for 6.4% growth a year earlier.

A number of companies, including the major department stores, have stopped reporting monthly results over the past year, making it more difficult to get a snapshot of the entire industry.

After several months of strong sales results, Gap Inc. (GPS) reported a 1% rise in July same-store sales when 1.6% was expected. Weakness at Old Navy offset strength at the namesake brand.

But Gap projected per-share earnings for its fiscal second quarter that topped consensus estimates.

"While the months within the quarter played out somewhat unevenly with stronger comp sales in May and June and a more modest comp in the small, largely clearance month of July, overall customer response to our summer product was strong in [the fiscal second quarter] at Gap and Old Navy," said Katrina O'Connell, vice president of corporate finance and investor relations at Gap.

Among teen retailers, Zumiez Inc. (ZUMZ) posted a 0.8% rise in same-store sales, missing expectations for 1.7% growth, while Buckle Inc. (BKE) recorded a 2.1% increase in same-store sales, just short of expectations for 2.3% growth.

Both misses came amid second-quarter warnings this week from two other teen retailers that don't report monthly sales results--American Eagle Outfitters Inc. (AEO) and Aeropostale Inc. (ARO)--indicating that the important back-to-school season may be tough for teen retailers.

Last year, apparel retailers in particular were helped by strong demand for the then-new color trend, particularly brightly colored and patterned denim.

"The bright palette lifted results strongly beginning as early as July last year," said Stifel Nicolaus analyst Richard Jaffe. "This year, we don't have a single strong trend like that and now the apparel retailers have to come up against tough comparisons."

Bucking the downbeat trend, however, was L Brands Inc. (LTD)--formerly Limited Brands--which posted 3% same-store sales growth last month, compared with expectations for 1.5% growth. The company also raised its earnings guidance for the second quarter.

Of L Brands' units, Victoria's Secret recorded a 2% increase in same-store sales, topping expectations for a 1.4% increase. Growth was due in part to strength in lingerie and the young-adult focused Pink brand, the company said.

Meanwhile, L Brands' Bath & Body Works reported 6% growth in same-store sales, well ahead of expectations for 0.5% growth, thanks to the performance of the brand's signature collection, home fragrance and soap and sanitizer businesses.

Meanwhile, among discounters, Costco Wholesale Corp. (COST) reported July same-store sales rose 3%, excluding gas, below expectations for 5.3% growth. Electronics sales were weak due to softer sales in televisions, cameras and computers, the company said. However, lawn and garden, automotive, and office supplies were among the stronger performing groups. Top-performing regions included the Southeast, Texas and the Midwest.

Fred's Inc. (FRED) reported 2.5% growth in July same-store sales, topping expectations for growth of 1.5%. Both general merchandising and the pharmacy departments contributed equally to the month's same-store sales increase, Chief Executive Bruce Efird said.

Write to Anna Prior at [e-mail]

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