Retailers scored a big win with shoppers in June, posting on
Thursday the strongest monthly same-store sales gains since
January as warmer weather and an improved economic backdrop
prompted consumers to pick up the spending pace.
The showing bodes well for the back-to-school selling season,
which starts later this month. But the high-income consumers
continue to lead the charge. Moderate-to-lower income consumers
are keeping their purse strings drawn tightly, spending mainly on
necessities and cutting back on discretionary purchases.
Sales at stores open at least a year rose 4.3% vs. a year ago,
says Ken Perkins, president of Retail Metrics. Analysts had
forecast an upwardly revised 3.9% increase. The January rise was
Retailers turned out the second straight monthly positive
surprise in June after missing expectations for three straight
months from February through April when they faced not only an
economic soft patch, but particularly adverse weather conditions,
"Better weather conditions coupled with an improving labor
market, rising home price, falling gas prices and a generally
improving macro-economic environment led to the strongest monthly
gain since January," Perkins said.
Retailers were relatively promotional during the month, which
helped drive traffic. And the warm weather helped drive summer
Michael Niemira, chief economist at the International Council
of Shopping Centers, calculates June comps rose 4.1% .
He says the month's strong showing gives encouragement that
retailers will perform "reasonably well" during the
back-to-school selling season.
The data also continue to paint an improving picture for the
fiscal second quarter, which runs from May through July, after a
soft first quarter, he says.
He says the key drivers for the month's strong showing are
improving consumer fundamentals, including a little better
employment picture the last three months and somewhat better
Of the 11 retailers reporting June monthly comps, apparel
) led the pack with a 7% gain in same-store sales vs. a year
earlier, sailing past views for a 4.7% increase. The Old Navy
brand's performance was particularly strong.
Regional discounterStein Mart (
) came in second with a 6.5% pop, sailing past estimates for a
4.5% gain. Perkins says the chain has racked up strong comps in
the past three months. The retailer is benefiting from a more
attractive product mix after revamping its apparel offering, he
Giant warehouse club retailerCostco Wholesale (
) kept up its winning streak with a hefty 6% rise in comps vs. a
year earlier, ahead of views of 5.3%. Costco's beat of 70 basis
points provided a big upside to the total tally, Perkins
Costco's core customers, he says, are high-end consumers with
an average annual income of $95,000. They're deriving the dual
benefits of rising equity and home prices, which have led to
improved spending on their part, says Perkins. Overall, he adds,
Costco has been "firing on all cylinders."
"It's a well-managed company with great product offerings and
pretty good prices," he said.
Victoria's Secret's parentL Brands (
) posted flat comps for the month, below forecasts for a 2.3%
rise. But it faced a difficult comparison with the 7% comp gain
it saw in June 2012.
The company's comps were dragged down by a 1% drop in
Victoria's Secret's comps. Victoria's Secret was also up against
a tough comparison with June 2102, when its comps were up 11% vs.
a year earlier.
Action sports retailer Zumiez (
), which reported Wednesday, saw a 1% rise in same-store sales
vs. a year earlier, below forecasts for a 2.1 % gain. It also
faced tough comparisons with an 8.2% comp gain in June 2012.
Overall, the results reflect an improved consumer spending
climate just as retailers head into the crucial back-to-school
selling season, which starts around July 20 and runs through
"These results suggest the consumer is doing a little better
and is benefiting from an improving economy, which should bode
well for the back-to-school selling season," said Perkins.
He says the consumer mood is "modestly improving." But there's
still a significant amount of concern about how the more
moderate-and lower-income consumer is faring.
"We continue to see this divergence with the high-end consumer
in a much healthier position than lower-to-moderate-income
consumers," Perkins adds.
He says we've been seeing this divergence for a number of
quarters. Lower-and moderate-income consumers aren't seeing the
wage gains or benefiting from the rising stock and housing
markets like the upper-income consumers are.
As a result, they don't have the extra disposable income to
make discretionary purchases, he adds.
'Financial Head Winds'
He cites comments fromFamily Dollar Stores (FDO) CEO Howard
Levine, when the variety discounter reported third-quarter
results on Wednesday: "Our consumables sales remained strong and
we continued to gain market share," said Levine. "However, our
discretionary sales remained challenged as our customers have
been forced to make spending choices between basic needs and
wants. Consistent with market trends, we expect that our
customers will continue to face financial head winds."
The consumable goods are selling well at discounters like
Family Dollar, but the discretionary items aren't selling, says
He says this divergence will be a concern for many specialty
apparel and discount retailers going into the back-to-school
The higher-end stores are faring better, he adds. "As we
continue to move forward through the summer, the lower end will
continue to see moderate gains."
Niemira expects July same-store sales will grow in the 3% to
3.5% range vs. a year earlier.
He sees a "moderate" overall same-store sales gain of 3.1% for
the back-to-school season. That would be below the 3.6% rise in
The forecast, which includes July, August and September comps,
encompasses a wider universe of retailers than those that
reported in June.