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 5.1%.
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, Perkins says.
"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 clearances.
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 consumer confidence.
Of the 11 retailers reporting June monthly comps, apparel giantGap ( GPS ) 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 ( SMRT ) 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 says.
Giant warehouse club retailerCostco Wholesale ( COST ) 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 says.
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 ( LTD ) 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 ( ZUMZ ), 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 mid-September.
"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 Perkins.
He says this divergence will be a concern for many specialty apparel and discount retailers going into the back-to-school selling season.
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 2012.
The forecast, which includes July, August and September comps, encompasses a wider universe of retailers than those that reported in June.