Retail Watch: Why August Sales Don't Matter (Update)

August might not prove to be indicative of a retail turnaround -- but keep an eye on September.

Author:: Jeanine Poggi
Publish date:: Sep 1, 2009 1:46 PM EDT

(Stock prices added.)

NEW YORK (

) -- August is the last month retailers will be up against difficult sales comparisons. But as the targets get easier to hit in September, can those retailers prove a turnaround is really in effect?

It is, to be sure, a hard month to figure: The benefits of the tax-free shift from July into August are being offset by a later Labor Day, which has delayed back-to-school shopping, rendering August something of a non-event.

As a result, investors should care less about this month than what happens in September -- the month that, in 2007, began a two-year negative run in same-store sales. Those easier comparisons next month should help struggling retailers like

Abercrombie & Fitch

( AMF).

September's Sector Check

Still, with respect to August, the going has been tough. Retail sales for the week that ended Aug. 29 declined 0.5%, according to the International Council of Shopping Centers and Goldman Sachs. On a year-over-year basis, sales were down 0.7%.

Likewise, ICSC is predicting same-store sales will fall between 3.5% and 4% during the month.

American Eagle Outfitters

(AEO) - Get Report

faced its hardest comparison on a two-year basis in August, and J.P. Morgan analyst Brian Tunick expects same-store sales to fall between 6% and 8%.

The teen retailer was heavily promotional during the month, especially in its denim business. A while the women's side of its business is improving, its men's performance remains challenged.

What August

will

provide, at least for teen retailers, is an inside look into the third quarter, which will be heavily affected by back-to-school shopping.

Gap

(GPS) - Get Report

will be in the spotlight, as expectations are high. Investors are waiting to see if the specialty retailer's

denim re-launch

and marketing efforts during the month will prove fruitful.

Department stores and discounters (minus

Wal-Mart Stores

(WMT) - Get Report

) are expected to be hit the hardest. Citi's same-store sales index forecasts both sectors posting a 6.2% decline.

Nordstrom

(JWN) - Get Report

will continue to struggle as high-end shoppers remain discriminate in their purchases. Stifel Nicolaus analyst Richard Jaffe forecasts same-store sales down around 12%.

And while Kohl's

(KSS) - Get Report

has the easiest comparisons of the department-store sector and customers have been responding favorably to its private-label and exclusive merchandise, Jaffe still expects same-store sales to fall between 3% and 5%.

Wholesalers are still feeling the pinch from lower prices at the pump and food deflation.

Costco

(COST) - Get Report

is expected to fall between 5% and 6%, while

BJ's Wholesale

(BJ) - Get Report

is forecast to fall 7% to 8%, Jaffe said.

And while

Target

(TGT) - Get Report

announced during its second-quarter earnings call that initial August sales showed a modest improvement, it will still need a boost in its apparel division for a turnaround.

The surprise winner of the month will be drugstores --

Walgreen

(WAG)

and

Rite Aid

(RAD) - Get Report

-- according to Citi's same-store sales index, which forecasts a 4% uptick in the sector.

Shoppers are forgoing traditional back-to-school supply stores like

Staples

(SPLS)

, and flocking to drugstores for pens, paper and notebooks.

And, once again, off-price retailers are expected to outperform. Tunick predicts both

TJX

(TJX) - Get Report

and

Ross Stores

(ROST) - Get Report

will be up between 2% and 4%.

Meanwhile, Tunick expects

Aeropostale

(ARO)

to continue to pull ahead of the pack, forecasting the company to be up 7% to 9% during the month.

Shares of retailers were in the red Tuesday afternoon ahead of the results. The S&P Retail Index dropped 2% to 357.03, dragged down by teen and women's retailers.

Wet Seal

( WTSLA) tanked 7% to $3.27,

Pacific Sunwear of California

(PSUN)

fell 8.5% to $4.05 and

Zumiez

(ZUMZ) - Get Report

dropped 7% to $11.73.

On the women's front,

Coldwater Creek

(CWTR)

slid 5% to $7.05,