U.S. July retail sales grow at slower-than-expected pace

The second half of the year is off to a slow start for retailers, who reported Thursday that sales at stores open at least a year were weaker than expected in July, increasing 2.9 percent from July of last year, according to a tally by Thomson Reuters. Discount stores and department stores posted some of the best results, with discounters sales increasing 3.9 percent, and those for department stores up 3.6 percent. But almost two-thirds of all stores reporting sales data missed analysts estimates, with retailers catering to teenagers faring particularly badly, increasing 1.5 percent.

Even with the uptick, the disappointment is based in part on the fact that the July comparison is being made against a lackluster month a year ago. In July 2009, revenue at stores open at least a year a crucial indicator called same-store sales was down 5.1 percent over all, making this year s increase especially unimpressive, analysts said.

July of last year was particularly weak, so most companies especially teenage retailers were up against very weak comps, said John Long, a retail strategist at Kurt Salmon Associates. That should ve made this July s comps a layup.

Other measures of consumer activity in July have shown mixed results, just as efforts by economists to assess the strength of the economic rebound have been mixed. Economists were encouraged by sales of automobiles in the United States, which rose 5 percent over July 2009. But an index of consumer confidence slipped to 50.4 points in July, from a revised 54.3 in June, according to the Conference Board.

Given that it accounts for about 70 percent of the United States economy, consumer spending is considered critical to a recovery.

Many Americans have become reluctant to spend because of a rocky job market and indications of a slowdown in the second half of the year. In the face of that uncertainty, consumers have been paying down debt or saving more. In June, Americans saved 6.4 percent of their after-tax income, about triple the rate before the recession.

Economists have been warning that the second half of the year may grow more slowly than expected, and the July same-store sales numbers reflected the slowing pace of recovery. In July, same-store sales volume in every category, from luxury to discount, was below the average of same-store sales so far this year, according to the International Council of Shopping Centers, which tracks about 30 mass retailers.

July is usually a mild sales month that is heavy on promotions as retailers try to clear out spring and summer clothes to make room for back-to-school stock at the end of the month. But it is also an early sign of how the back-to-school season might fare.

How well discounters and department stores fared versus the teen retailers is striking, Mr. Long said. With the back-to-school season beginning, it is concerning that the start we re seeing has not been positive for the teenage stores, he said. But it s still theirs to lose. There is time to do in-store promotions.

Over all, stores catering to teenagers reported an increase of 1.5 percent; analysts expected a 2.3 percent gain. Last year s July same-store sales for such retailers were down 12.1 percent. Retailers like Buckle (same-store sales down 9.3 percent), Hot Topic (down 9 percent) and Wet Seal (down 4.3 percent) were hit particularly hard.

Another teenage retailer, A ropostale, where sales increased 1 percent, missed analysts estimates of a 7.1 percent increase by a big margin. The company cited a change in consumer shopping behaviors in a recorded message from a spokesman, Kenneth Ohashi.

A ropostale s results were a huge disappointment and the only real big surprise, Robert Samuels, an analyst at Phoenix Equities, wrote in a client note.

Retailers said that deal-hunting consumers were part of the reason for the weak sales.

At Ross Stores, where same-store sales increased 2 percent, We believe that increased promotions at other retailers may have negatively impacted our business early in the month, the vice chairman and chief executive, Michael Balmuth, said in a statement.

J. C. Penney, where sales dropped 0.6 percent, said in a statement that it had sold clearance inventory at a faster rate and at lower prices than in July 2009, when its same-store sales decreased 12.3 percent.

And Nordstrom cited its anniversary sale as part of the reason for its strong performance, with same-store sales increasing 7.6 percent. (Nordstrom missed analyst expectations by 0.5 percent, however.)

Discount stores had the best results among the categories followed by Thomson Reuters. The discount warehouse Costco Wholesale reported a 6 percent gain, while BJ s Wholesale Club rose 2.8 percent and Target rose 2 percent.

The best performer for the month among retailers tracked by Thomson Reuters was Limited Stores, where sales were up 12 percent, well over the estimate of 5.2 percent and a big turnaround from a decline of 7 percent in July 2009. Limited attributed the increase in part to more sales of full-priced merchandise at its Victoria s Secret division.

Several retailers also said that Western and Southern states were strong contributors to sales. Nordstrom said sales were strong in the Midwest, South and Northwest. Gap said that Southern sales were strong, with the weakest sales in the Northeast. A ropostale said that the West and South were its best regions for the month, and Ross Stores said Florida and the Northwest were outpacing other areas. Costco said the Midwest, Texas, the Southeast and the Northwest were its best performers.