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What Grade Are Retailers Getting for Back-To-School?

Retailers are showing more signs of stabilization as the back-to-school season enters its final weeks, and that's going to be good news for profits in the sector.

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With inventories lean and products priced to move, it should only take small sales gains to yield stronger profits.

"We're seeing a margin recovery before a sales recovery," said Dana Telsey, the chief research officer at Telsey Advisory Group, in an interview on CNBC.

Telsey has been on a 10-city tour of shopping malls from Los Angeles to Atlanta, and said she is beginning to see a little more traffic in the stores.

"I think August is a little bit better than July so far," Telsey said. Compared with last year's results, she is expecting same-store sales to be "a little less negative."

"We are seeing better sales in some of the department stores and off-pricers than we're seeing in some of the speciality stores," Telsey said.

One positive sign for retailers is that there is starting to be a recovery in women's fashion, according to Bill Taubman, chief operating officer of mall operator Taubman Centers.

Women's fashion has struggled for several quarters, with women cutting back on clothes for themselves as household budgets grew tighter.

However, the makers of clothing for teens may have a difficult time, according to Taubman.

"One of the problems is that there isn't a clear fashion profile," he said. "We have different mixes of things going on...There isn't one clear trend to get behind."

Some of the popular fashion choices will be '80's-inspired items like boyfriend jackets and jeans. Even the quintessental '80's item, shoulder pads, are making a comeback.

Consumers are still concerned about price, but there are signs that they are beginning to consider other factors such as "quality" and "value" when making a purchase, Taubman said.

"Price is still important, but it's starting to not be the only thing driving behavior," he explained.

But consumers should be warned that if there's a must-have item on their list, they should hit the malls early because inventories are tight.

According to Telsey, this trend will continue straight through the Christmas holiday season.

"I don't think you're going to have a terrific Christmas," Telsey said. "They're not bought for a terrific Christmas—they are bought for a profitable Christmas."

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