Walgreen, L Brands Lead Mixed July Sales

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Retailers posted mixed July sales results Thursday that topped views, but were dragged down by misses from teen apparel chains finding it tough to score good grades heading into the key back-to-school season.

Sales of stores open at least a year rose 4.2% vs. a year earlier, according to Ken Perkins, president of Retail Metrics. Analysts had forecast a 4.1% gain.

But the results look better on the surface than they actually were, says Perkins. He says a surprise comp gain of 6.3% from giant drugstore chainWalgreen ( WAG ) gave the index a big boost of 80 basis points.

The tally without that boost is more reflective of what's going on at retail, says Perkins.

He calls July a "soft" month that was more sluggish than originally thought, leading more retailers to miss expectations than exceed them.

Still, July was a "transitional" month, says Perkins. And there were lots of summer clearances and early back-to-school offerings.

Threadbare Apparel

He says July proved to be a tough environment at the malls, where traffic was weak, particularly in the apparel space.

"Income growth for mid- to lower-income consumers has been almost nonexistent over the past year," Perkins said.

That's left this consumer segment with little discretionary income, and spending on apparel is "getting crowded out" by increased sales on housing, autos and durable goods.

Also, he adds, gas prices are up year over year, and the payroll tax hike has impacted low- and middle-income consumers in particular.

Michael Niemira, chief economist at the International Council of Shopping Centers, calculates that retailers saw a 4.2% gain in July comps vs. a year earlier.

Niemira is more upbeat about the month's showing.

"When you take out the drugstore component from Walgreen, it looks softer than the last couple of months, but the last couple of months were exceedingly strong," he said. "Despite the relatively weak performance by some retailers, we actually had an overall performance that was stronger in July than any month since January."

Victoria's Secret's parentL Brands ( LTD ) was a standout. It reported a 3% gain in same-store sales vs. a year ago, well ahead of forecasts for a 1.5% rise. It also raised its Q2 earnings guidance Thursday.

But other retailers weren't so lucky.

Even industry leaderCostco Wholesale ( COST ) fell short of views in July, posting a "decent" 4% rise in comps from a year earlier, but shy of analyst forecasts for a 4.8% gain, Perkins says.

The giant warehouse-club operator saw strong traffic, but was hurt by foreign-exchange translations and weak business in categories like consumer electronics.

Sports retailerZumiez ( ZUMZ ), which reported Wednesday, saw comps rise 0.8% vs. a year earlier, missing forecasts for a 1.7% rise in comps for the month.

Teen apparel retailerBuckle ( BKE ) also missed. Its comps increased 2.1% from a year earlier vs. an expected gain of 2.6% gain.

Apparel giantGap (GPS) reported a rare miss. Its July comps were up 1% vs. a year earlier, short of views for a 1.6% increase. Gap was up against a tough comparison with last year, when it saw a 10% gain.

Back To School

The soft July showing and misses from Buckle and Zumiez follow preannouncements from teen apparel retailersAmerican Eagle Outfitters (AEO) andAeropostale (ARO) that Q2 comps and sales were down quite a bit from a year earlier.

That has raised concerns about the back-to-school selling season, which started in mid July.

"Given the relatively weak data coming from the teen apparel retailers for the second quarter, the back-to-school selling season could be even more challenging," said Perkins.

But Niemira sees it differently. "The worry level has increased given the recent preannouncements," he said. "But you have to be careful not to be so backward-looking and be mindful that the economic picture is better than the last couple of months. That would mean we should be a little more upbeat about back-to-school."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: BKE , COST , LTD , WAG , ZUMZ

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