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Reasons for Cheer After Worst Retail Sales in 3 Years?

Thursday, 5 Jul 2012 | 2:17 PM ET

June was a rough month for many Americans. But is the worst yet to come?

Woman shopping for clothes
Reza Estakhrian | Stone | Getty Images
Woman shopping for clothes

Across the country, people were fighting wild weather in June, from wildfiresto excessive heat and even a hurricane in Florida. But that was only one of the reasons many retailers saw less-active cash registers. Beyond the weather, retailers blamed everything from economic concerns, exchange rates, difficult comps, and calendar shifts for sluggish June sales.

According to Thomson Reuters, retailers reporting June same-store sales rang up a worse-than-expected 0.1 percent increase year over year. That's the worst reading in three years.

Still, while there were a number of disappointments, it wasn't all bad. In fact, without drugstores Rite Aid andWalgreen, the same-store index index up 2.5 percent.

There also was some strength seen at both the high- and low-end, extending the recent trend of the bification in the retail sector.

Although a number of analysts have expressed concerns about the high-end consumer slowing down, it wasn't reflected in Nordstrom orSaksmonthly results. Nordstrom's same-store sales are among the best of those reporting, up 8.1 percent. Saks same-store sales topped expectations, gaining 6 percent for the month. Other luxury names like Ralph Lauren and Coach and Michael Kors are trading higher in response.

Retailers Miss June Sales Estimates
Dana Telsey, CEO of Telsey Advisory Group, provides an outlook on the retail sector, and the likely winners and laggards going forward.

Still, by and large, retailers' June sales are concerning. Back-to-school is the second biggest "season" for retail after the Christmas holidays, and it's just around the corner.

In June, off-price retailers TJX and Ross Stores continued their strong sales trend, with both posting gains of 7 percent for June. For the past year, TJX's average same-store sales increase is 5.8 percent, while Ross Stores' average same-store sales increase during the same period is a strong 6.6 percent.

Ross Stores raised its earnings guidance for the second quarter based on gross margin performance in both May and June. TJX increased its EPS guidance for both the second quarter and the full year, pushing shares of TJX to fresh highs.

And Limited continues its strong same-store sales trend, up 7 percent for June. Since June of last year, Limited's same-store sales averaged a gain of 8 percent per month. The Columbus, Ohio-based retailer can thank its Victoria's Secret angels for another strong month — Victoria's Secret has posted 30 straight quarters of same-store sales of 7 percent or higher.

But, there was widespread weakness through the department and big box store landscape, and that is disconcerting for the back-to-school season.

Macy's, Kohl's, Target and Costco all missed expectations. Macy's, Target and Costco did still post gains, while Kohl's same-store sales fell 4.2 percent.

Costco says the timing of the 4th of July holiday had a negative impact on its June sales. Last year, the July 4th sales were captured in June comps, but not in this years'.

Kohl's and Target both said sales were weakest in the south, which is the region impacted by Hurricane Debby.

Macy's blamed the weak economy and lower tourist spending in big cities like New York for its miss. (Macy's does include online sales in its same-store sales, and they were up 31.8 percent in June.) There is a case to be made for this. Consumer confidence fell in Juneto a six-month low and unemployment remains stubbornly high.

To counter these trends, many analysts think retailers will have to offer aggressive promotions to win consumer dollars, and a number of retail analysts even took the step of downgrading retail stocks based on their concerns about a pullback in consumer spending.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Courtney Reagan on Twitter @CourtReagan.

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