Video: School boost

updated 8/31/2006 1:30:35 PM ET 2006-08-31T17:30:35

Shoppers persevered at the nation’s stores and malls in August, buying skinny jeans and other back-to-school fashions and giving many retailers solid sales for the month. The outlook for the rest of the year nonetheless remained unclear amid higher energy costs and interest rates and a deteriorating housing market.

As merchants reported their results Thursday, the winners included Wal-Mart Stores Inc., Federated Department Stores Inc., Limited Brands Inc., as well as teen retailers Bebe Stores Inc. and Wet Seal Inc. J.C. Penney Co. was among the big disappointments and Gap Inc. again struggled with its fashions.

Overall, “the early signs are that back-to-school is doing better than expected,” said Jharonne Martis, an analyst at Thomson Financial. “Parents have budgeted for back-to-school. There is no stopping the consumer.”

According to Thomson Financial, of the 40 retailers that have reported same-store results so far, 21 beat estimates, while 19 missed. Same-store sales are sales at stores open at least a year and are considered a key measure of a retailer’s health.

The solid performance in August — a time when stores aim to do the bulk of their back-to-school business — is comforting as many analysts expect a consumer spending slowdown in the second half; their concerns were heightened after June’s sales stalled but business rebounded in July, helped by clearance sales of summer goods. After a slow start, business in August gained momentum even as concerns increased about the consumer’s resilience.

Last week, the Commerce Department reported that sales of new homes dropped in July by the largest amount since February while the inventory of unsold homes climbed to a record high. And according to the latest snapshot of the job market, hiring slowed in July as employers added just 113,000 jobs. That pushed the unemployment rate to a five-month high of 4.8 percent and provided more evidence that companies are growing more cautious amid high energy prices, though they have retreated recently.

Such bad news about the economy, particularly the job market, weighed on consumers in August, causing their confidence to tumble even more than expected to its lowest level in nine months, according to the New York-based Conference Board.

Wal-Mart, which benefited from a more focused back-to-school advertising campaign aimed directly at teens, had a 2.7 percent gain in same-store sales. Analysts polled by Thomson Financial expected a 2. 5 percent gain.

“We saw sales momentum for the August period build throughout the month. Our customers focused spending on food, consumables and items for back to school,” said Tom Schoewe, executive vice president and chief financial officer of Wal-Mart

Penney posted a 0.5 percent decline in same-store sales in its department store business, below the 1.8 percent increase analysts had expected.

Women’s accessories were among Penney’s best-performing women’s categories. The company, however, had weaker sales of big ticket items, particularly furniture, which was up against stronger sales gains a year ago.

Major Market Indices

Federated, which acquired May Department Stores Co., last year, had a 3.8 percent gain in same-store sales, slightly better than the 4.0 percent Wall Street expected. Same-store sales include only Macy’s and Bloomingdale’s. On Sept. 9, Federated will be converting most of its former May Co. locations to the Macy’s brand.

Nordstrom said its same-store sales rose 7.1 percent; analysts expected a 3.3 percent gain.

Limited had a 9 percent gain in same-store sales, better than the 6.2 percent estimate from analysts.

Gap, dragged down by business at its namesake stores and Old Navy, had a 2 percent decline in same-store sales, though that was better than the 3.4 percent decline analysts had expected.

“While we were pleased by our progress at Banana Republic and by total company merchandise margins that were above last year, August results at Gap and Old Navy were disappointing,” said Sabrina Simmon, senior vice president, treasury and investor relations at Gap Inc. in a statement.

Teen retailers generally had a good performance. Bebe had a 12.5 percent gain in same-store sales, better than the 11.4 percent analysts projected.

Wet Seal, which operates stores under both Wet Seal and Arden B., had a 8.7 percent gain in same-store sales in August, better than the 7.0 percent forecast. But teen retailer Pacific Sunwear of California Inc. struggled with a 9.4 percent drop in same-store sales, worse than the 4.6 percent decline Wall Street estimated.

On Wednesday, Costco Wholesale Corp. reported a 5 percent increase in same-store sales, missing the 5.7 percent estimate. The wholesale club operator issued the sales report as it warned that fourth-quarter profit would be below analysts’ estimates, as sales on items like jewelry and furniture slowed and the company struggled with higher gas prices.

American Eagle Outfitters Inc. reported an 11 percent gain in same-store sales in August, better than the 9.1 percent estimate from analysts.

Hot Topic Inc. suffered a 6 percent drop in same-store sales, worse than the 5.7 percent analysts expected.

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