It may be the beginning of the year for students, but for retailers, it's report-card time. Analysts expect the early grades on the back-to-school selling season to be weak when retailers report August results Thursday.
The results will give insight into whether consumers opened their wallets after months of keeping them closed amid the recession, and how well back-to-school offerings such as trendy jeans, dresses and T-shirts are being received.
Analysts say poor sales would raise already-high fears about the crucial holiday selling season.
Labor Day falls a week later this year and several states' tax-free shopping weeks occurred in August this year rather than July, both making comparisons from a year ago difficult.
Thus, retailers and analysts said August and September taken together will likely paint a more complete portrait of back-to-school sales, crucial for teen retailers. The back-to-school season can make up about 20 percent of their annual revenue.
"According to our checks, back-to-school selling picked-up later in the month, concurrent with more school openings, and helped by weather that was drier and more seasonable than last year," wrote BMO Capital Markets analyst John Morris. "Encouragingly, mall traffic was flat for the month, versus down 4 percent a year ago."
He expects companies that focus on low prices such as Aeropostale Inc. and discounter TJX Cos. will beat expectations, while higher-priced Abercrombie & Fitch will miss expectations.
‘A long way to go’
Roth Capital Markets analyst Elizabeth Pierce wrote in a client note that overall sales will likely be soft because shoppers are holding back on impulse and spur-of-the moment items, particularly early in the back-to-school season.
Still, she said sales likely "built toward the end of August driven by pre-Labor Day sales and promotions as well as by some newness and pent up demand in certain categories," such as outerwear and sweaters.
She predicted The Buckle Inc., which has managed to offer enough compelling fashion to teens to avoid the sales slump its competitors have seen, will be among the few stores reporting positive sales results.
Michael P. Niemira, The International Council of Shopping Centers chief economist, expects sales at stores open at least a year, a key retail measurement that removes the effects of store expansion, to be down 3.5 to 4 percent overall from a year ago.
Ken Perkins, president of retail research firm Retail Metrics, says that figure likely fell 3.4 percent in August, marking the 12th consecutive monthly decline. Still, that's better than the 4.7 percent drop in July, Perkins noted.
"There's still a long way to go until retailers get back to healthy growth," he said. That growth will be crucial to any recovery because consumer spending makes up about 70 percent of U.S. economic activity.
Consumers still cutting back
Outside of the teen stores, August results are expected to continue weak sales seen in the second quarter as consumers continue to cut back amid the recession.
"Inventory at retailers remains lean, potentially holding back sales, but possibly contributing to better margins," Stifel Nicolaus analyst Richard Jaffe said in a note. "Consumers, facing unprecedented economic uncertainty, continue to behave frugally, spending cautiously and saving vociferously, while contributing to sales weakness among apparel retailers."
Still there have been a few encouraging indicators the economy may be stabilizing. On Tuesday, the Institute for Supply Management showed the highest number for its manufacturing index since June 2007. New customer orders jumped to a level not seen since late 2004.
Elsewhere, a gauge of future U.S. home sales rose more than expected in July to the highest point in more than two years.
Perkins said the back-to-school season will be an important indicator of how the approaching holiday season — crucial to retailers — will turn out this year.
If results are better than expected, the holiday season "will possibly be mediocre, instead of terrible, the way it looked like it might be several months ago," Perkins said.