Results came in better than expected for many retailers Thursday, an encouraging sign as the back-to-school shopping season kicks off. It is the second-busiest shopping season of the year behind the holidays. Three-quarters of retailers reporting results beat expectations, according to Thomson Reuters.
"Hot weather and summer clearance, coupled with some newness in stores in the back half of the month, is leading to a nice upside heading into back-to-school," said Ken Perkins, president of Retail Metrics, a research firm. He said colored denim is a key fashion trend that is new in stores and attracting customers. "Retailers were pretty aggressive with promotions, trying to clear out merchandise."
Analysts had expected modest gains in the month, as Americans slowly start to feel better about high unemployment and the bumpy global economy. On Tuesday, The Conference Board reported that its consumer confidence index rose for the first time in five months. Still, that measure remains at historic lows, and is not expected to improve significantly until hiring picks up substantially. And a separate Commerce Department report Tuesday showed Americans spent no more in June than May, even though their income grew by 0.5 per cent.
Analysts were quick to credit hot weather and sales for the results, rather than any uptick in the economy.
"The weather drew people out, and they were enticed by the discounts, but I would not put too much stock in what happens in July," said Brian Sozzi, chief equities analyst at research firm NBG Productions. "Consumers are only responding to deep discounts or heavily promoted items."
Only a handful of chains representing roughly 13 per cent of the U.S. retail industry report monthly sales. Major chains that don't report include Wal-Mart Stores Inc. and J.C. Penney Co. The figures are based on stores open at least a year and are a key measure of retailers' health because they exclude newly opened and closed stores. Economists watch the numbers because consumer spending accounts for 70 per cent of U.S. economic activity.
Discount stores were among the best performers. TJX Cos., which operates TJMaxx and Home Goods stores, and Ross Stores Inc. both reported better-than expected sales for the month and raised their earnings projections for the second quarter.
Gap Inc. was a surprise outperformer. Revenue in stores open at least a year rose 10 per cent, handily beating expectations for a 3.8 per cent gain. The figure rose 13 per cent at Gap stores, 12 per cent at Old Navy and 8 per cent at Banana Republic.
Target also performed well, with revenue in stores open at least a year up 3.1 per cent in July, as more shoppers visited its stores. Analysts had expected the measure to rise 2.7 per cent.
And Limited Brands Inc., which runs Victoria's Secret and Bath & Body Works, said the revenue figure rose 12 per cent in July, double what analysts expected. The company also boosted its second-quarter earnings outlook and declared a special dividend on Thursday.
Teen clothing sellers were mixed. Abercrombie & Fitch late Wednesday said revenue at stores open at least a year fell 10 per cent in the second quarter. It also slashed its outlook for future earnings, including cutting second-quarter estimates to between 15 and 18 cents, about half of what analysts had expected.
Teen retailer Aeropostale Inc. said revenue in stores open at least one year were flat for the quarter, and slashed its earnings expectations for the quarter. Its shares dropped more than a quarter in morning trading. Wet Seal and Zumiez both missed expectations for July.
But Hot Topic Inc. and American Eagle Outfitters Inc. both reported strong second-quarter results. American Eagle Outfitters Inc. on Wednesday raised its forecast for second-quarter earnings, saying that sales during the period were stronger than expected.
Department stores were mixed. Macy's and Kohl's both topped expectations, but the more expensive Saks Inc. fell short.