Retail Sales Miss the Mark as Consumers Curb Spending

Retailers posted disappointing sales in June as consumers curbed spending amid higher gasoline prices and rising unemployment, prompting concern about how the back-to-school shopping season will shape up.

AP

Although expectations for monthly sales were low, many retailers fell short of even those modest expectations as wet weather further dampened demand for summertime merchandise.

Still, with retailers keeping tight control over their inventories and costs and forecasting very conservatively, many companies were able to hold to their forecasts, and in some cases, even raise their earnings outlooks.

This helped support some stocks. The Standard & Poor's Retailing Index was up 0.3 percent on Thursday morning, roughly in line with the broader S&P 500.

Sales at stores open at least one year fell 4.9 percent overall, Thomson Reuters data showed. More than half of the retailers polled missed expectations, with teen apparel chains and department stores posting the steepest declines.

In June, shoppers continued to trade down to less expensive products and focus their spending on the essential items. This doesn't bode well for retailers, who are beginning to stock merchandise for the back-to-school shopping period.

JP Morgan analyst Chuck Grom said there are signs the retail sector might be stabilizing, but he does not expect to see sales gains anytime soon.

Instead, Grom expects shoppers will continue to focus on value, and retailers who cater to this group will do well. He cited Kohl's , which posted a 5.6 percent same-store sales decline, as an example. That decline was narrower than the 6.8 percent drop forecasted by Thomson Reuters.

"They are gaining share, they have better traffic," he said. "We think a company like that will continue to do well."

But unlike Kohl's many apparel retailers posted disappointing sales, including teen merchant Wet Seal , The Children's Place Retail Stores and Stage Stores .

"Shoppers appear to be divided about whether they need to make more changes in their shopping habits.  And that seems to be contributing to the month-to-month ups and downs in the retail sales numbers," said Frank Badillo, Senior Economist at Retail Forward.

Discounter Target's same-store sales fell 6.2 percent, wider than the 5.6 percent decline expected by analysts surveyed by Thomson Reuters. Still, the Minneapolis-based company says it expects to meet or exceed analyst expectations for second-quarter profit.

Limited Brands posted a 12 percent drop in same-store sales growth last month, compared with the 7.9 percent decline expected by analysts.

Wet Seal posted an 11.1 percent drop in June, worse than the 9.1 percent decline that Thomson Reuters had expected.

The Children's Place reported a 12 percent same-store sales decline in June; analysts had expected an 8.7 percent decline.

Teen store Abercrombie and Fitch reported a loss of 32 percent in same-store sale. The company had originally only expected a 28 percent loss. Their total sales for June was $230 million.

JC Penney same-stores sales fell 8.2 percent but the company raised its second-quarter earning forecast. The company now expects to see a loss of between 8 cents and 12 cents a share.

Saks same-store sales fell 4.4 percent. Despite the decline, it was an improvement over the past six months, where monthly sales plunged at a double-digit pace. Saks said it expects to see second-quarter same-store sales falling in the "mid-teen percentage" rate.

Although Costco Wholesale's same-store sales were in-line with analyst estimate, the wholesale club store said sales for stores open at least a year fell 6 percent from a year ago.

Excluding gasoline sales, Costco's same-store sales were down 1 percent, while on a local currency basis it said international same-store sales rose 8 percent.

Demand remained stronger for food items, Costco said, pointing to consumers' cautious spending.

The long recession, growing job losses and tight access to credit had already constrained shoppers, forcing them to seek deep discounts and buy only essential items like groceries and toiletries while largely shunning clothes and home goods.

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That has hurt department stores, clothing chains and other retailers, while discounters have gotten a boost.

Wal-Mart Stores  recent decision to stop reporting monthly sales has made it tougher to judge the industry's performance, analysts have said.

June usually marks the onset of summer weather, when consumers seek out items like light clothing, beachwear and barbecue equipment.

But this June was the second-coolest in 10 years, with record rainfall in cities like New York, Boston and Chicago, weather research firm Planalytics said.

Investors will be looking ahead to the back-to-school season. Retail Metrics President Ken Perkins expects it could be difficult.

"If that's the case, it's going to be a negative harbinger for what we see for the holidays," Perkins, told Reuters.

-AP and Reuters contributed to this report.

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