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Analyst Watch: Trading Retail Sales

Sales at US retailers fell for a second month in June, suggesting that consumer spending could be poised to slow down.

The latest government report on retail sales showed weak receipts at both automotive dealers and gasoline stations.

The Commerce Department said total retail sales slipped 0.5 percent following a revised 1.1 percent drop in May. Sales in May were previously reported to have declined 1.2 percent.

Doug Hart, partner of retail practice at BDO Seidman, says the report shows customers are frugal and looking for value. Consumers were confident in March and April, but their confidence has receded in the summer months.

Consumer spending is the overarching issue for retailers right now and unemployment and job security are underlying issues, Hart says. He thinks consumer credit levels are concerning. Debt levels have declined, but limits have increased.

On the bright side, however minimal, Hart says retailers are showing some signs of recovery. Their supply chain is now increasing after having dramatically decreased, he says. There are concerns about maintaining a low cost base that's been established. Hart says sales and demand is modest enough that there won't be margin erosion, but that could change depending on stress.

Looking past the June report, Hart says the back-to-school season may show modest increases, but he's not overly excited about it. He says apparel will show some signs of life.

Ed Yruma, retail softline and apparel analyst at KeyBanc Capital Markets, says three retailers in particular will likely perform well this fall. He says Abercrombie and Fitch recently adopted more promotions, which should help back-to-school sales. Thanks to its strong value messaging, Yruma says Aeropostale tends to execute well. Given the volatility of the consumer, he adds, there will be more focus on value and that could benefit Dress Barn . Overall, Abercrombie and Dress Barn are Yruma's top picks for back-to-school.

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