Retail Sales Mixed in July as Back-to-School Sales Start Slow

U.S. discounters and department stores reported strong July sales on Thursday, but clothing stores suffered from a slow start to the back-to-school shopping season.

This was largely due to promotions at the discount and department stores during the month, said Dana Telsey, chief research officer at Telsey Advisory Group, in an interview with Becky Quick on CNBC's "Squawk Box."

"The steep promotions certainly helped to drive traffic," Telsey said, "while the specialty retailers really suffered given the wear-now merchandise for fall just wasn't wasn't that appealing when it's ninety degrees."

Notably, Telsey is not expecting many retailers outside of the specialty retail segment to reduce their earnings forecasts. This is because July sales tend to be a smaller part of the second quarter and because many retailers already reduced their profit expectations in June.

She said expects Nordstrom, J.C. Penney, and discounters such as Wal-Mart Stores are in the best positions right now.

Concerns About Apparel

Wal-Mart, the world's largest retailer, said sales at stores open at least a year rose 1.9% in July after it cut prices on back-to-school items to drive shoppers into its stores. The increase was better than analysts had expected and toward the top end of the company's forecast.

Wal-Mart said it was encouraged by positive early signs in its back-to-school categories but that the apparel and home businesses continued to be soft and are expected to remain so through the third quarter.


Analysts did not have high hopes for apparel retailers in July, due to very hot weather in some areas and the increasing tendency of some shoppers to time their purchases with tax holidays or wait until school starts to see what other kids are wearing first.

However department stores, especially those like Nordstrom and Saks, which cater to high-end shoppers, continued to shine, showing that luxury consumers are not pulling back.

Retail sales have been trending lower this year as weakness in the housing market ripples through the economy and high fuel prices require more of shoppers' budgets. Markets have been hammered in recent weeks amid concerns over subprime mortgages, anemic U.S. jobs growth and uneven corporate earnings reports.

The trend has raised concerns about whether the strength of consumer spending, which accounts for about two-thirds of U.S. economic activity, will hold up.

An extra week on last year's retail calendar created monthly periods this year not exactly comparable to year-ago results.

Harry Potter To The Rescue

Discounters that sell general merchandise, including Target and Costco Wholesale, reported July sales that were better than analysts expected, with Costco citing strong sales of televisions, digital cameras and the latest Harry Potter book release.

Target same-store sales rose 6.1% in July, which was within the discount retailer's forecasted range. Meanwhile, Costco Wholesale said same-sales sales rose 7% last month, compared with predictions from analysts that called for an increase of 5.5%.

By contrast apparel retailers such as Chico's FAS, Pacific Sunwear of California, Gap and Talbots posted weaker-than-expected results.

Results were particularly mixed among teen retailers, with Zumiez taking the lead. The retailer said sales at stores open at least a year rose 9.7% last month, outpacing analyst estimates of 8.0%. Meanwhile, American Eagle missed their estimates and posted a lackluster sales decline of 6.0%.

"This was largely due to later back-to-school starts across the country, as well as Florida and Texas moving tax-free events from July to fiscal August," American Eagle said in a press release. However, the retailer expects customers are responding well to its back-to-school merchandise.

Saks July sales rose 14.9% in July, beating the 10.6% rise analysts were expecting, helped by men's apparel, accessories and designer sportswear. Nordstrom's sales rose 9.4%, more than double analysts' average estimate.

However, Kohl's posted flat July same-store sales, versus the company's forecast for a mid-single-digit increase.

"We were disappointed in the performance of seasonal businesses such as shorts, tees and tanks," said Kohl's Chairman and CEO Larry Montgomery.

"With retail it's a real Darwinian environment," Eric Beder, retail analyst at Brean Murray, told "Worldwide Exchange." "You have to look at every one of these stocks individually and see who has the best management team, who's been able to, when you look at stores, control inventory. Cause in a period like we are in now, a slow-growth period, you want to look at people who control inventory and maximize margins."