Long-awaited retail recovery may finally be getting started

A mother goes back to school shopping for her daughter in Littleton, Colorado.
Matthew Staver | Bloomberg | Getty Images

That long-anticipated retail rebound may actually be taking shape.

Macy's, American Eagle, Kohl's and The Children's Place were among a list of retailers over the past week that said back-to-school sales were off to a strong start.

Their comments added to budding optimism that the retail space is due for a modest recovery in the second half of the year, which includes the critical back-to-school and holiday seasons.

Better-than-expected quarterly results from several high-profile retailers — a number of whom raised their full-year guidance — also spurred hope.

"We're better-positioned for the back half of the year coming out of the second-quarter earnings season than everyone felt going in," Dana Telsey, CEO of Telsey Advisory Group, told CNBC. "Inventory levels are leaner [and] fashion trends are starting to appear."

Lighter inventory levels make it less likely that retailers will be left with excess merchandise. That, in theory, would allow them to be more in control of their promotions.

The S&P retail ETF has risen more than 2 percent over the past month, when hopes for a retail rally started to emerge. The initial lift was caused by a slew of favorable economic data, including better housing, unemployment and consumer confidence numbers.

As the major retailers' second-quarter earnings reports started rolling out, starting with the troubled department store space last week, investors were relieved to see not stellar — but less bad — results.

Telsey: Wal-Mart's momentum continuing

"We're thrilled about back-to-school," Chad Kessler, global brand president at American Eagle Outfitters, told analysts Wednesday.

The teen retailer cited strength in its denim business, a category that was also called out by Macy's.

"We are encouraged by the start of the back-to-school season," said Karen Hoguet, the department store's CFO. "We are seeing strength in all categories, but are most excited by the strong trend in denim."

Kohl's management noted that July finished "very strong" for the company, after a cool start to the summer held back sales earlier in the quarter. Juniors, young men's and girls performed "extremely well," CEO Kevin Mansell said.

"Some of those back-to-school businesses that we mentioned, like young men's and juniors, were positive for the entire quarter, not just for July," CFO Wes McDonald said. "So that gives us some hope going into back-to-school."

Back-to-school merchandise also recorded a comparable sales gain at J.C. Penney in July, and CFO Ed Record said he feels "good about the content and composition" of its inventory for the period. The Children's Place and Urban Outfitters also indicated that the back-to-school quarter was off to a strong start.

"All of our key back-to-school categories across all of our channels are performing well," said Jane Elfers, CEO of The Children's Place.

The National Retail Federation predicts shoppers will spend $75.8 billion on back-to-school purchases this year, which would translate into an 11 percent increase over last year's expected spend.

Although trends have improved from a dismal first quarter, not everyone is convinced the season will be a big hit. Morgan Stanley analyst Jay Sole said early positive reads on the season are due to easy comparisons and an earlier start to shopping.

Morgan Stanley's Kimberly Greenberger agreed trends appeared "decent" in the first part of August, though she expected a greater pickup in demand. While humid weather likely dampened that demand, Greenberger noted the longer it takes cool weather to appear, the more likely back-to-school shopping will be delayed. That increases the probability fall goods will be marked down, she said.

Consumers are meanwhile facing a number of hurdles, including higher health-care expenses and uncertainty over the presidential election. Those headwinds will face off against what should be a cooler winter, which would fuel purchases of coats and scarves that were postponed last year.

In March, Jefferies analyst Randal Konik predicted a better fashion assortment and healthier consumer would position 2016 to be a better year.

"With the weather now cooperating, this thesis is now playing out," Konik said.