August good for retailers, third quarter looks bright

Thu Aug 30, 2012 2:37pm EDT

A shopping basket rests on the floor of a Target store in Dallas, Texas September 3, 2009. REUTERS/Jessica Rinaldi

A shopping basket rests on the floor of a Target store in Dallas, Texas September 3, 2009.

Credit: Reuters/Jessica Rinaldi

(Reuters) - Nearly all retailers posted better-than-expected sales gains in August at stores open at least a year as parents and students wrapped up back-to-school purchases, setting the stage for a strong third quarter.

August same-store sales rose 3.6 percent at retailers tracked by Thomson Reuters I/B/E/S, trumping forecasts for a 2 percent rise. The results exclude teen retailer Zumiez Inc (ZUMZ.O), which reports numbers later Thursday.

"Back to school generates so much sales in the first month of the retailers' third quarter, it has to have a big impact," said Mark Larson, head of retail at accounting firm KPMG.

Back-to-school is the second-biggest selling season for retailers in the United States after the winter holidays. However, a strong back to school showing still does not guarantee a strong holiday season, Larson said.

"There is still too much uncertainty around consumer spending to make a declaration that (the) holiday season would be good," he said, adding that factors like unemployment, droughts, higher gas prices due to hurricane Isaac, can put a crimp on consumer spending.

Retailers are still dealing with a somewhat difficult climate. Earlier this week the U.S. Commerce Department said consumer spending in the second quarter was revised up a notch but was still below the first quarter's pace. Consumer spending accounts for about 70 percent of U.S. economic activity.

Shopping is being driven by events, such as the start of the school season or various holidays, said Michael Niemira, chief economist of the International Council of Shopping Centers.

"I don't think we would sustain this type of pace or anything near it. I would suspect you would see a lot of slowing," he said.

The ICSC sees September same-store sales rising 3 to 4 percent, excluding drugstores.

IBM's chief retail expert Jill Puleri said with the event driven shopping as kids leave for school and college, IBM expects sales of home and women's categories to go up over 8 percent during the quarter.

SALES TRUMP EXPECTATIONS

The August sales trend will give retailers confidence about the consumer mindset going into the holidays, said Joel Bines, managing director of AlixPartners' retail practice.

"They will be cautious and have planned promotions but can have more confidence about not needing unplanned promotions," he said.

Gap's 9 percent rise in same-store sales topped analysts' forecast for a 5.4 percent increase. The results were driven by strong back-to-school sales, particularly at its Old Navy chain, where North American same-store sales jumped 12 percent.

Same-store sales are an important measure of retailer performance because they strip out the effects of store openings and closings. Gap's shares rose 3 percent to hit their highest in a year.

The broader S&P Retail Index .RLX was down 0.22 percent, dragged by shares of Sears Holdings Corp (SHLD.O), which plummeted more than 8 percent on Thursday on news that the U.S. retailer will be replaced by chemical maker LyondellBasell Industries NV (LYB.N) on the S&P 500 index <.

Teen retailer Wet Seal Inc WTSLA.O was the only company to miss sales estimates.

A strong August at TJX Cos Inc (TJX.N) has the off-price retailer now expecting third-quarter earnings per share near the high end of its estimated range of 56 cents to 59 cents.

Nordstrom Inc (JWN.N) got a big boost from the timing of its Anniversary Sale. Eight days of the sale, which offered discounts on fall merchandise, fell in August this year versus just one day in August of 2011. Same-store sales rose 21 percent, blowing past analysts' expectations for an 11.1 percent rise.

At Target Corp (TGT.N), sales were stronger in the second half of the month as shoppers responded to "compelling value for their back-to-school and back-to-college shopping," said Chairman and Chief Executive Gregg Steinhafel. Same-store sales were strongest in food, followed by health and beauty products.

(Reporting by Nivedita Bhattacharjee and Jessica Wohl in Chicago, Phil Wahba and Dhanya Skariachan in New York; Editing by Jeffrey Benkoe, John Wallace and Andrew Hay)

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