Empty Backpacks for Back-to-School Season?

Estimates for the back-to-school shopping season are starting to come in and some of the reports are pretty grim, as analysts fear recent weakness in consumer spending will only grow worse in the months ahead.

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“I think it’s kind of data point upon data point, and nothing is coming up roses,” Citigroup analyst Deborah Weinswig told CNBC Tuesday, citing signs that the weak consumer spending that began in the late springtime has worsened in recent weeks.

As a result, Weinswig lowered earnings estimates for some retailers during the back-to-school selling season, which is the second busiest time for retailers after the Christmas holiday season.

Weinswig's call came in the wake of Monday's report that U.S. retail sales fell for a third straight month in June as demand for everything from cars to electronics to building materials slowed. That report, combined with three months of weak monthly same-store sales reportsfrom retail chains, weak store traffic and other factors are throwing up caution signs regarding consumer spending.

“We also hear that clearance merchandise isn’t moving, and that (sales of) back-to-school (merchandise) has been weak even when it has been aggressively priced, so something right now isn’t working in the consumer’s mind,” Weinswig went on to say.

One key factor in all this is weak conversion rates, which means retailers are having a difficult time turning shoppers in their stores into buyers. And there are fewer shoppers in stores, according to a report in early July by ShopperTrak.

That said, ShopperTrak last week issued a forecast that said they expected parents to buy more supplies and back-to-school clothes than they did during the same period last year.

“This is an important shopping period, and retailers have struggled during back-to-school seasons the past few years,” said Bill Martin, founder of ShopperTrak in the press release that announced the group’s forecast.

After a sharp decline in 2009, year-over-year back-to-school sales rose only 1.8 percent in 2010 before increasing 4.5 percent in 2011, according to ShopperTrak. Throughout that entire period retail foot traffic, or the number of people going to stores, decline during all four of the past back-to-school shopping seasons.

This year, Martin expects the tide to turn for retailers, with an estimated 4-percent increase in back to school sales. Martin said he expects shoppers to both buy more and visit more during August, the month that captures the bulk of back-to-school sales.

Certainly, consumers have lower gasoline pricesworking in their favor.

PriceGrabber, an online shopping site that helps shoppers compare prices, conducted a poll of 4,450 of its shoppers from May 22 to June 5. Among the total, about 1,509 shoppers said they planned to shop for back-to-school season this year, and the majority of those consumers expected to spend as much as $500 on back-to-school shopping this year.

PriceGrabber Back-To-School Shopping Survey
PriceGrabber Back-To-School Shopping Survey

Last year, about 48 percent of those polled said they would spend as much as $500, compared with this year, when about 63 percent said they would spend that much.

Twenty percent said they expected to spend between $500 and $1,000 and 17 percent of shoppers said they didn’t have a back-to-school shopping budget last year.

That said, it is clear that some retailers are likely to struggle as they head into the fall with elevated inventories.

Another part of Citigroup’s stock call was to remove JCPenneyfrom its top picks list, but the firm maintained its buy rating on the department store's shares.

Weinswig’s more cautious stance also is reflected in JCPenney's price target, which was cut nearly in half to $24 from a prior 12-month target of $40, and its earnings estimates, which also were lowered. Weinswig also cut estimates and price targets for Kohl’s, Macy’sand Target.

Weinswig also downgraded her rating on Target to neutral from buy, citing her more cautious view of the pace of consumer spending in the second half of this year.

And clearly Weinswig isn’t the only one on Wall Street growing more negative about the retail sector. Short interest for broadline retailers and food and drug retailers rose 1.6 percent during the final two weeks of June. For the same period, short interest on the New York Stock Exchange fell 3.6 percent.

Janney Capital Markets analyst David Strasser also downgradedLowe’sand Home DepotTuesday to neutral, and also cited moderating retail sales trends, and a concern that second-half earnings are at risk given the weak macroeconomic backdrop.

In the wake of these ratings changes, the stocks were trading mixed. Home Depot, Lowe’s, JCPenney, and Target were all lower, while Kohl’s and Macy’s shares rose.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.