Back-To-School Buying Boosts September Sales

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Retailers capped the back-to-school season with decent sales gains in September, with most chains topping views Thursday as a brighter jobs picture, lower gas prices and deals on clothing and other seasonal goods prompted shoppers to pick up the spending pace.

But negative surprises from key retailersCostco Wholesale ( COST ) andGap ( GPS ) outweighed the store beats. Both reported on Wednesday, leading to retailers falling short of forecasts for the first time since February.

In a retailer index, September sales at stores open at least a year rose 5% vs. a year earlier, according to Ken Perkins, president of Retail Metrics. The showing missed analysts' forecasts for a 5.1% gain. It was only the second negative surprise this year.

Highly-ratedZumiez ( ZUMZ ) andL Brands ( LB ) led with strong showings that sailed past estimates.

"September was not as bad as some feared, with more positive than negative surprises," Perkins said. "It was driven by decent back-to-school sales early in the month and an improved employment picture is helping on the margin."

September Out Like A Lamb

September got off to a strong start, he added, but once back-to-school selling faded there really wasn't much traffic or buzz at retail in the back two-thirds of the month, and sales lagged.

Still, more retailers beat forecasts than missed in September, says Perkins, which was "an encouraging sign." With the exception of Gap, apparel retailers fared well.

Action sports apparel and gear retailer Zumiez posted a 6.6% gain in September same-store sales vs. a year earlier, much better than the expected 2.7%.

Victoria's Secret parent L Brands saw a 6% gain in September same-store sales, sailing past forecasts for a 3% increase.

Teen apparel retailerBuckle ( BKE ) saw a 2.2% rise in same-store sales for the month, ahead of estimates for a 2% increase.

But major apparel retailer Gap reported flat September same-store sales and said third-quarter gross profit margins will be "moderately below" the prior year's, driven by underperformance in the Gap brand.

Another negative surprise came from warehouse club and typical top retail performer Costco. It reported a 4% rise in September same-store sales vs. a year ago, missing views for a 5.6% rise. Its core U.S. same-store sales were up a solid 6%, beating forecasts for a 5.8% gain.

Regional discount chainStein Mart (SMRT) posted a 4.9% rise in September same-store sales vs. a year ago, well past views for a 2.7% gain.

Michael Niemira, chief economist for The Retail Economist, calculates September same-store sales rose 5% vs. a year earlier.

"These numbers are consistent with the improvement we're seeing in the broader economy," he said.

Same-store sales growth started to show improvement consistently from month to month in April, with a pickup in the pace to where it is now at around 5%, he says.

He expects October same-store sales to slow a bit from September to an increase of between 3.5% and 4.5% vs. a year earlier. That's because retailers "will lose some of the strength from drugstores they saw in September numbers," he says.

And strong they were. Giant drugstore operatorWalgreen (WAG) posted a 7.9% increase in same-store sales for September last Friday, topping forecasts for a 6.1% gain. RivalRite Aid (RAD) reported a 5.1% rise in same-store sales for the month last Thursday, ahead of views for a 3.2% rise.

On the negative side,PriceSmart (PSMT), which owns and operates U.S.-style membership shopping warehouses in Latin America and the Caribbean, reported a 0.7% gain in same-store sales for the month on Tuesday, below views for a 2.8% increase.

Analysts will get the "full gauge" on the back-to-school shopping season, which runs from the end of July through mid-September, when retailers report third-quarter earnings, says Perkins.

"All you can say about back-to-school for the monthly reporting retailers is that August and September same-store sales improved for a year ago," he adds.

So far, fewer retailers have lowered their third-quarter earnings guidance than did so at this time last year, Perkins says.

"That doesn't mean there's not some (which will lower guidance) in the pipeline," Perkins said.

"There are still a number of competitive pressures heading into the key holiday shopping season that are pressuring margins. While the macroeconomic backdrop has improved, the most important component for American consumers, wage gains, has been stubbornly stuck at very low levels, which does not allow for improved discretionary spending."

Ringing Up The iPhone 6

In terms of winning back-to-school performers, Perkins says theApple (AAPL) iPhone 6 "certainly will take sales away from traditional retailers in the third quarter, given its popularity and its strong sell through." He added: "In an environment where wage growth is not taking place, strong iPhone 6 sales will siphon dollars away from other discretionary spending areas."

Retailers that Perkins expects had a good back-to-school season include giant department store operatorMacy's (M) and Zumiez. Also on his list of good back-to-school performers are IBD 50 stocksFoot Locker (FL),Under Armour (UA) andNike (NKE), which are reaping the benefits of the popularity of athletic footwear and apparel.

In terms of the climate heading into the holiday season, consumers remain "cautious" and very "deal-oriented," Perkins says.

"That means there's going to be another fairly promotional holiday season," he adds.

He also notes that retailers are hiring at a "slightly higher clip" than last year, which would suggest they expect business to improve a bit."

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

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

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