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Aug 3, 2011
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Discounts, warm weather seen helping July sales

By
Reuters
Published
Aug 3, 2011

August 3 - Retailers are poised to report higher sales for July, a discount-driven month that may do little to lift their margins. July sales figures will give investors an early read on demand in the consumer-driven U.S. economy at the start of the back-to-school season, the second-biggest selling period of the year after Christmas.


A shopping mall in Honolulu, USA - photo: corbis

Retail chains ranging from Target Corp to Saks Inc will report closely watched sales at stores open at least year on Wednesday and Thursday.

Analysts are expecting same-store sales to show a 4.3 percent rise for July, compared with a year-earlier increase of 2.8 percent, according to Thomson Reuters data.

"The hot weather has certainly helped drive people into malls and helped clear out summer seasonal merchandise," said Ken Perkins, president of research firm Retail Metrics Inc.

At issue, he added, is whether retailers will be able to sell their wares at full price in the back-to-school season.

It is not uncommon for retailers to offer discounts in July as they try to clear store shelves for back-to-school merchandise. Some investors worry that the discounting may have been deeper than usual and could weigh on margins.

"There was a lot of clearance merchandise," said Trutina Financial Chief Investment Officer Patricia Edwards. "While the sales may be there, the margins may not."

The back-to-school selling season has important implications as consumer spending accounts for about 70 percent of the U.S. economy, which barely grew in the first half of 2011.

Retail stocks have fallen in the past month. The Standard & Poor's Retail Index is down 4.2 percent since retailers reported June sales, although the broad Standard & Poor's 500 Index .SPX fell more steeply at 5 percent.

NO STOMACH FOR FULL-PRICE GOODS

Analysts expect warehouse club operators such as Costco Wholesale Corp and BJ's Wholesale Club Inc to post some of the largest sales gains in July.

Warehouse clubs, which charge customers an annual fee to shop in their stores, have won shoppers seeking low prices on necessities such as groceries or toiletries.

Analysts also expect healthy sales gains at dollar stores and off-price retailers TJX Cos Inc and Ross Stores Inc. Off-price chains sell sharply discounted designer merchandise often returned to vendors by department stores.

"I just don't think that the consumer has the stomach right now to really pay full price, even for new ... back-to-school merchandise," Perkins said. "Consumer confidence is not particularly strong right now."

U.S. consumer sentiment fell in July to its lowest point in more than two years as anxieties over stagnant wages and unemployment deepened, a survey showed.

Rhonda Douma, who was shopping for her 3-year-old daughter at American Girl in a mall in Hollywood, California, said she planned to spend the same amount this back-to-school season as she did last year.

Her top destinations for the season highlight the price sensitivity of the post-recession American shopper.

"Usually it's Walmart and Target and Marshalls," said Douma, 42. "We just found out about this store, and they have a lot of cute, fun stuff -- and brand names for cheaper prices.

Analysts also expect a strong July for luxury chains such as Saks and Nordstrom Inc because of the purchasing power of higher-income shoppers.

One underperformer of the month could be clothing retailer Gap Inc. Same-store sales at the parent of the Gap, Old Navy and Banana Republic chains are expected to range between staying flat and falling as much as 3 percent, according to Thomson Reuters data.

Same-store sales reports capture only part of the retail economy. Industry leader Wal-Mart Stores Inc and other major retailers such as Best Buy Co Inc and Amazon.com do not report monthly sales.

(Additional reporting by Alexandra Alper in New York and Mary Slosson in Los Angeles; Editing by Lisa Von Ahn)

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