Discounts Spur Surprising August Retail Sales Gains

By Anne D'Innocenzio | September 2, 2010 | 11:21 AM EDT

In this July 30, 2010 photo, teenagers enter a Juicy Couture clothing store that features a window display with back-to-school fashion, in New York. The nation's retailers are reporting surprisingly solid gains for August, helped by aggressive discounting, even as unusually hot weather and job worries kept a lid on back-to-school buying. (AP Photo/Mark Lennihan)

New York (AP) - American shoppers, taking advantage of deep discounts and tax-free holidays, opened up their wallets a little more for back-to-school spending, giving retailers surprisingly solid gains for August.
The results provided a sliver of hope for the recovery amid an unrelenting batch of bad news, from slumping home prices and high joblessnes, that have pointed to a stalling economy. Still, the retail data masks underlying weakness in consumer spending as they're being compared with declines a year ago and worries still abound about the critical holiday season.
Shoppers remain selective and are focusing on the necessities, a trend that is expected to continue through the holiday shopping season.
In fact, spending on many nonessentials like fashions are still below 2008 and revert back to five years ago,according to MasterCard Advisors' SpendingPulse, which tracks all transactions including checks.
As retailers reported results Thursday, Costco Wholesale Corp. posted a robust gain, boosted by higher gas prices and improved international revenue. Limited Brands Inc. and Macy's Inc. also had solid revenue increases. Still, a number of clothing stores such as Aeropostale Inc. and Gap Inc. had weak results. Target Corp.'s results came in below expectations.
"It's a glimmer of hope that the numbers are coming in ahead of low expecations," said Ken Perkins, president of research firm RetailMetrics. "But it took retailers being heavily promotional to bring shoppers in. There's still serious concerns about the consumer's ability to spend during the crucial November and December periods."
According to a tally by Thomson Reuters, 13 retailers beat expectations while seven missed projections. The figures are based on revenue at stores opened at least a year, considered a key measurement of retailer health because it excludes the effects of stores that open or close during the year.
Retailers, including many teen merchants, aggressively promoted jeans and other fashions in July as they sought to lure jittery shoppers in the stores. Tax-free holidays in nearly 20 states also helped attract customers. But still shoppers focusing on replenishing items and bought fashions closer to when they need them, analysts say.
The Conference Board's monthly survey, released Tuesday, showed shoppers feeling slightly more optimistic in August than July - but not more than a year ago. And there's no reason in sight for them to feel better soon.
Home sales are plunging, and consumers are saving more and spending less as the unemployment rate remains stuck at almost 10 percent. The Labor Department is expected to report the fourth straight month of tepid job gains in the private sector on Friday.
"Consumers are buying what they absolutely need and are being very careful about it," said retail consultant Emanual Weintraub.
Costco said that revenue at stores open at least a year increased 7 percent in August, buoyed by higher gas prices and improved international revenue.
This topped the 4.2 percent rise analysts expected, according to by Thomson Reuters. But fourth-quarter and full-year revenue missed Wall Street expectations.
Target said sales of back-to-school items and food helped revenue in stores open at least a year rise 1.8 percent in August. But the discount retailer's results fell just short of expectations for a 2 percent increase. Food, health care and beauty items were the strongest sellers. Electronics and home decorations were weaker.
Limited, operator of Victoria's Secret and Bath and Body Works, posted a 10 percent gain in August. Analysts surveyed by Thomson Reuters, on average, expected the figure to rise 7.3 percent.
Gap said its key sales figure rose was flat in August, helped by better results at its Banana Republic chain. That's better than the 0.2 percent decline expected by analysts polled by Thomson Reuters.
Among department stores, Macy's said revenue rose in August as back-to-school shopping helped the company top Wall Street forecasts.
Revenue from locations open at least a year rose 4.3 percent during the month. That's better than the 4 percent gain expected.
J.C. Penney Co. had a 2.3 percent increase, better than the 1.6 percent gain. Overall, men's and children's apparel were the top performing merchandise divisions during the month.
Among teen retailers, Aeropostale Inc., hurt by the aggressive discounting at competitor Abercrombie & Fitch Co., struggled with a 1 percent decline, missing analysts' expectations of a 1.2 percent gain. The company said it had better results in peak back-to-school regions, showing shoppers are buying more close to when they need the items.
Abercrombie reported a 6 percent increase, slightly ahead of analysts' estimates for a 5.9 percent gain. But what helped drive business was a generous 40 percent discount, analysts say.
American shoppers, taking advantage of deep discounts and tax-free holidays, opened up their wallets a little more for back-to-school spending, giving retailers surprisingly solid gains for August.