Retail Sales Wilted in July Heat The weather was hot in July, but consumers went cold, leading to disappointing retail sales that came in below or at the low end of most forecasts.

Comparable sales for major retailers (in stores open at least a year) were up 2.9% from July 2009, according to a tally by Thomson Reuters. That was slightly below the 3.1% gain its analysts had forecast. In fact, most analysts had forecast increases in sales in the 3% to 4% range.

The exceptionally high temperatures across the country may have been one culprit, helping boost sales of marked-down summer clearance items and shrinking receipts, noted Michael Niemira, chief economist of the International Council of Shopping Centers.

"Back-to-school demand, which normally kicks in late in July, also was postponed as hot weather curbed the consumer's interest and urge to buy," he wrote in a research report.

July was the first clean month in a while, with no holidays shifting months from year to year, and no extra weeks of sales to skew comparisons, so it gave a better view of the consumer trends, and a clear picture emerging is one of continued bargain-hunting. Many retailers reported strong traffic, but sales were tepid, as shoppers kept cherry-picking cheap goods and clearance items. The retailers were equally cautious, making only mild revisions to their guidance for the second-quarter earnings reports expected to begin next week.

"The consumer continues to be very price conscious and is looking for a deal," wrote Rob Samuels, retail analyst at Phoenix Partners Group.

Retailers Relied on Promotions


Consumer demand has moderated after a surge in the spring fed by stimulus programs and pent-up demand, noted Frank Badillo, senior economist with the consulting firm Kantar Group. In a report, he noted that spending intentions of low- and middle-income households have deteriorated recently, even as high-income households are recovering from the shock of June's stock market drops.

As a result, many retailers stepped up promotions in July, including holiday-themed offers to pull some second-half traffic into stores, as many observers have noted. Customers are responding; Limited Brands (LTD) reported comparable sales at its Bath & Body Works chain were flat for the second quarter due to a shortened semi-annual sale, which took out three to five percentage points from sales growth.

But too much promotional activity also hurt results among some retailers, especially teen apparel stores, noted Brian Sozzi, retail analyst at Wall Street Strategies. Hot Topic (HOTT) , Buckle (BKE) and even Limited disappointed, he wrote in a report. Limited raised its second-quarter guidance to between 34 cents and 36 cents, up from the previous 27 cents to 32 cents guidance, but Sozzi said that was low, considering it posted a 12% increase in comparable sales.

Promotions definitely cut both ways, depending on the retailer. For example, the long-suffering Abercrombie & Fitch (ANF) saw a healthy 7% increase in comparable sales as it stepped up its promotional activity, thanks to double-digit increases in transactions that offset lower receipts per sale. Its Hollister chain saw a 4% increase in sales, thanks to a 20% increase in transactions balanced by an 8% drop in the average receipt.

J.C. Penney Co., (JCP), which said more clearance sales led to a 0.6% drop in comparable sales, updated its guidance for second-quarter earnings of five cents to eight cents per share down to the low end of that range.

"I think some very definitive lines are being drawn in the sand," Sozzi wrote. Many retailers had expected a strong end to the month and that didn't materialize, he noted.

Hoping for a Back-to-School Surge in August


In fact, most earnings guidance was tepid. Aeropostale (ARO), which had shown resilience throughout the recession, only narrowed its earnings estimate to between 45 and 46 cents per share from its previous estimate of 45 to 48 cents. TJX Cos. (TJX), parent of discounters Marshalls and TJ Maxx, only said its earnings would come in at the top end of its previous estimate of between 70 cents and 73 cents per share.

There were a few exceptions: Kohl's (KSS), which reported comparable sales increased 4.1%, also raised its guidance to between 80 cents and 82 cents per share, up from the previous 70 cents to 75 cents.

And August may yet show a surge in back-to-school shopping. According to most surveys, parents will spend more this year than last, even as they watch their wallets.

Many observers have noted that in recent years, more shopping is getting done after the first day of school, once the weather cools. Retailers can only hope the colder weather will turn up the heat along their aisles.

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Garrick

FOR SAVVY TRADERS: SHORT THE S&P 500 INDEX! WE ARE DUE FOR A SUBSTANTIAL MARKET DROP, VERY POSSIBLY BEGINNING TOMORROW, FRIDAY, AUGUST 5.

WE ARE BEGINNING OF THE THIRD LEG DOWN IN EQUITIES (and the eocnomy), A PROCESS THAT WILL LIKELY CONTINUE THROUGH MOST OF 2011. ANTICIPATE ANOTHER 25% - 50% DECLINE IN EQUITY INDICES OVER THAT PERIOD.
Garrick Oracle

August 05 2010 at 4:04 PM Report abuse rate up rate down Reply
Garrick

Couldn't it be that sales "wilted" NOT becuas eof the July heat, as the author naively concludes, BUT because the consumer is simply NOT CONSUMING?!

August 05 2010 at 3:56 PM Report abuse rate up rate down Reply
sc890qr

obama says the economy is i growth, is this a lie from him?

August 05 2010 at 3:33 PM Report abuse rate up rate down Reply
Fed up Senior

July Heat, April showers, May flowers, yadi, yadi, yada. Enough with the lame excuses. The reality of the situation is that the consumer has no confidence in the economy and certainly no confidence in the Obama administration and his Chicago thugs. This will not change as long as we allow Obama to ram unpopular and unwanted legislation down our throats. You want sales and consumer confidence to go up? Get rid of the Obama thugs.

August 05 2010 at 2:05 PM Report abuse +1 rate up rate down Reply
bohemianacres

As far as clothing, my grown children and their spouses have been buying "back to school" during sales this past winter and spring. For school supplies, parents around here are saying, "We paid our local taxes. If the schools want the kids to have certain supplies for classes, let them get it from their own funds." As for lunches and snacks, more parents are fitting into the "qualifying" category of receiving aid, again from taxes. Definitely, parents are cutting down buying. But that is to be expected in a recession heading for deflation, is it not. What else is new?

August 05 2010 at 1:54 PM Report abuse rate up rate down Reply