Retail sales miss forecasts in July, raise back-to-school worries

Retail sales for July missed expectations as discounters and teen apparel stores struggled, causing Wall Street to fret about the fate of back-to-school shopping.

A monthly gauge of same-store sales from Thomson Reuters found 4.2% growth from a year earlier, though analysts had expected a 4.4% uptick. Stripping out the effect of drug stores, the industry got a 3.7% boost, which also fell short of predictions.

Discounters reported a 4% rise – a full percentage point below forecasts. The teen apparel category also failed to impress, increasing sales 1.6% instead of the expected 2.1%.

Earlier this week, American Eagle said same-store sales for its second quarter likely slumped 7% while rival Aeropostale projected a 15% decline. Similar chain Rue 21 pre-announced a 5.9% same-store sales dive amid heavy discounts on spring and summer merchandise in its second quarter.

After “several notable misses in the teen space,” analyst Liz Dunn of Macquarie Capital lowered her estimates for Abercrombie & Fitch quarterly sales, which will be announced later this month.

In a report titled “We Hate These Blurred Lines” after the popular Robin Thicke tune, Dunn said business is suffering from an absence of clear fashion trends and is instead relying on the effect of promotions. As they did last year, many retailers will continue to rely on the colored denim craze.

Months of cold temperatures didn’t help.

“Warm weather broke late and thus retailers had a condensed time period in which to sell spring/summer goods,” she wrote.

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The weakness in the market has “raised a cautionary flag as we turn the corner into the rapidly approaching key back-to-school selling weeks,” according to analyst Ken Perkins.

In a separate measure of retail sales from his Retail Metrics firm, Perkins said an overall 4.4% increase showed more companies missing expectations last month than exceeding them.

July, he said, is not considered a major selling month, and is instead used for clearance sales.

But retailers’ mediocre performance indicates “a challenging traffic environment out there in the mall,” exacerbated by high gas prices, the continuing effects of the payroll tax increase, minimal wage gains and general “summer doldrums,” Perkins said.

Retailers may also be facing competition from the housing, autos and durable goods industries, he said.

“The question arises are we in the midst of a spending slowdown or are consumers holding off and shopping closer to need,” Perkins wrote in his report. “Or both?”

But not everyone sees looming doom.

L Brands said its same-store sales rose 3% in the month, above Wall Street forecasts for a 1.4% uptick. The company raised its expectations for the second quarter.

The company, which raised its expectations for the second quarter, benefited from strong lingerie sales at Victoria’s Secret and busy home fragrance and soap business at Bath & Body Works, according to analyst Howard Tubin of RBC Capital Markets.

A survey from WSL Strategic Retail found Thursday that 88% of shoppers intend to spend at least the same or more during the back-to-school season than they did last year. A third of parents said they are willing to forgo major promotions in stores in favor of the convenience of paying a premium for goods online.

More than three quarters said they will patronize mass merchandisers such as Target, Wal-Mart and Kmart, according to the research firm.

The International Council of Shopping Centers also had an optimistic perspective, saying that the “very solid” 4.4% gain in July showed the strongest rise since January’s 4.5% boost. Gap will report after the market closes.

The trade group said “the majority of consumers will begin their back-to-school shopping in August,” likely pushing same-store sales up between 4.5% and 5%.

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Follow Tiffany Hsu on Twitter at @tiffhsulatimes