Retail chains reported same-store sales in June that far exceeded Wall Street's expectations, as consumers rushed into stores to snap up seasonal items on discount.
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Woman selecting clothes from rail in shop
The news bodes well for the kick-off of the back-to-school shopping season, which gets underway in July, as the strong sales helped to clear out inventories to make way for new merchandise.
The Thomson Reuters Same-Store Sales Index rose 6.5 percent in June, topping the analyst estimate of a 4.9 percent gain.
The increase also was far better than last year, when the Thomson Reuters Same-Store Sales Index rose 3.1 percent.
Only two retailers, Stein Mart and JC Penney , brokewith the trend. Both reported disappointing results that fell short of Wall Street's expectations, and JC Penney lowered its same-store sales forecast for the second quarter.
The department store said same-store sales rose 2 percent in June, compared with the 2.3 percent estimate from analysts.
JC Penney now expects second-quarter same-store sales to rise between 1 percent and 2 percent, which is below the company's prior forecast, which called for same-store sales to rise 3 percent to 4 percent during the quarter.
The department store blamed its performance on a "softer than anticipated selling environment for the moderate customer and the resulting higher level of promotional activity during the quarter."
Indeed, even though the headlines were good, analysts remain cautious for the second half of the year.
The high-end shopper is in a much better position that the lower-end shopper, according to Brian Tunick, an analyst at JP Morgan.
"We'll continue to see what happens when retailers go to raise prices 10 percent in the back half of the year because that basically is what sourcing pressure will cause them to do," Tunick said. He said that will be the real test of the consumer's strength.
June typically is a clearance month and consumers are still shopping for bargains.
One of the strongest performances came from Limited , which hosted a semi-annual sale at its Victoria's Secret stores. Limited's same-store sales rose 12 percent in June, blowing past the 3.8 percent average analyst estimate reported by Thomson Reuters.
Discounters Target , Costco and BJ's Wholesale also topped estimates.
Target said same-store sales rose 4.5 percent in June, far above the 3.2 percent analyst estimate.
According to Target, the result was at the "high end" of its own internal expectations, and was helped by an increase in the size of the transactions shoppers made.
In a recorded message, Target said it expects July same-store sales results to rise in the low- to mid-single digits. Inventories were in "very good condition" at the end of June, according to the retailer.
High-end retailers also performed well with Nordstrom seeing a same-store sales gain of 7.9 percent and Saks reported a 11.9 percent. Analysts were looking for gains of 5.0 percent and 7.0 percent, respectively.
Sales in July will offer investors one of the first chances to see how the back-to-school shopping season will shape up. Some analysts are anticipating a strong seasonas households have been working over the past few months to strengthen their household finances and have saved for the event.
Still, one telling sign of the lingering uncertainty is that retailers did not raise earnings forecasts in the wake of the strong sales.
"Looking ahead to July and beyond, retailers have their work cut out for them," said Ken Perkins, president of Retail Metrics. "Clearance inventories of summer-related merchandise have largely been sold through and will only benefit July sales on the margins. New early fall and back-to-school sets will flow into stores steadily throughout the month."
Perkins said he wonders if middle-to-low income consumers will be willing to pay full price in July.
A breakdown of the results follows:
