Big Chill for Chain Stores

Most post disappointing results amid scorching July heat.
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Updated from 10:04 a.m. EDT

Retail sales for one of the hottest Julys on record disappointed Wall Street, despite easy comparisons with the same month last year and solid results turned in by

Wal-Mart

(WMT) - Get Report

.

An aggregate index that tracks the monthly sales results of 64 major retailers published by Retail Metrics showed that overall same-store sales, a key retail metric gauging sales at stores open at a year, rose by 3.7% in July. That compares to July 2004, when same-store sales rose 3.2%.

Ken Perkins, president of Retail Metrics, said his firm was expecting a gain of 4.2%.

"Weakness was across all segments with each sub-industry group falling short of forecasts," Perkins said. "Department stores were particularly weak, with only 13% of the group posting upsides."

He noted that 39% of the companies making up the index posted upside surprises, down from the average 54%. Meanwhile, 59% of the retailers posted downside surprises, up from the average 44%.

Some observers cited record heat and humidity in July as the major factor affecting shopping trends. Michael Niemera, chief economist and director of research with the International Council of Shopping Centers, noted that July was one of the hottest for the nation as a whole in the last 100 years, and many cities in the central U.S. and Northeast are experiencing their hottest summer ever.

"Sales continued to be driven by hot weather merchandise, while back-to-school sales have gotten off to a slow start -- in part due to the relatively hot weather," said Niemera in a research note. "As a result, this year, the back-to-school season may extend later into September before consumer demand turns towards fall/cooler weather fashions."

Excluding the world's largest retailer, Retail Metrics' index was up only 3.1%. Wal-Mart confirmed a 4.4% gain in same-store sales, or sales at stores open at least a year, in July compared with the same month last year. That figure lands on the high end of the retailer's estimate for a 3% to 5% increase, and it beat Wall Street's expectations.

For August, Wal-Mart forecast a 3% to 5% increase in same-store sales, up from last year's 0.5% gain. In July, its total sales rose 10.7% to $22.8 billion.

Results from its chief competitor,

Target

(TGT) - Get Report

, fell just shy of analysts' expectations. The retailer reported a same-store sales gain of 5.5% for July, well within its own estimated range of 4% to 6% growth.

"This performance reinforces our belief that Target will deliver very strong profit growth in the second quarter, consistent with our previous earnings per share guidance of 58 cents or more," the company said.

Wall Street analysts were expecting second-quarter earnings from Target of 59 cents a share, according to consensus estimates reported by Thomson First Call.

Gap

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continued to struggle, posting a 4% drop in same-store sales for July. However, the retailer also provided investors with optimism about its earnings prospects. It estimated its second-quarter earnings will come in at 28 or 29 cents a share. Wall Street analysts were expecting earnings of 26 cents a share.

Meanwhile,

Kohl's

(KSS) - Get Report

said its same-store sales dropped unexpectedly by 0.5%. Its total sales rose 9.6% from the year-earlier period to $846.2 million.

Elsewhere, sales at major department store chains looked soft.

Federated

(FD)

, the parent of Macy's and Bloomingdale's, reported a 0.9% decline for same-store sales in July. Wall Street was expecting a gain. Despite the disappointment, the company stood by its forecast for earnings of 80 cents to 85 cents a share for the second quarter.

J.C. Penney's

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results were soft, with a same-store sales gain of 1.6% for the month, below Wall Street's estimates. It said total department store sales rose 2.3% to $1 billion, while catalog and Internet sales were up 4%.

Also,

Nordstorm's

(JWN) - Get Report

July comp was weaker than expected, up 3.6% for the month. Its total sales rose 5.4% to $787.2 million from the year-ago period.

Results for the red-hot teen apparel retailers were scattered.

Abercrombie & Fitch

(ANF) - Get Report

posted same-store sales up 22%, but Wall Street was expecting a larger gain and the stock was selling off. It was recently down $3.63, or 5.2%, to $66.61 in premarket trading.

Pacific Sunwear

(PSUN)

beat estimates with a 4% jump in same-store sales. Its total sales rose 14.2% to $97.3 million.

Wet Seal

(WTSLA)

continued its comeback, logging a same-store sales gain of 50.9% for July.

Late Wednesday,

Aeropostale

(ARO)

, which delivered an unexpected same-store sales decrease and lowered its earnings guidance.

The New York-based chain store said same-store sales fell 4.2% in July from a year ago, disappointing Wall Street, which expected a modest gain in sale-store sales. Based on the performance, the company lowered its second-quarter earnings estimate to 12 cents or 13 cents a share, down from 16 cents to 19 cents a share.

"While our 'wear now' knits and denim categories are performing well, the initial performance of certain back to school merchandise including sweaters, fleece and corduroy pants have been significantly below our expectations," the company said. Second-quarter sales totaled $232.8 million, up 19.5% from a year ago.

Meanwhile,

American Eagle Outfitters

(AEOS)

said July comps rose 17.1% from a year ago, about 2 percentage points above the Wall Street forecast.

The Warrendale, Pa., company said it now expects to earn 35 cents or 36 cents a share in the second quarter, up from its old estimate of 34 cents to 35 cents a share. Analysts had been expecting earnings of 36 cents a share. The company's total sales were $513.3 million in the second quarter, up 25.4%.

Goth outfitter

Hot Topic

(HOTT)

formalized a warning it issued last week, saying July same-store sales fell 5% from a year ago. The company previewed earnings of 2 cents to 4 cents a share for its quarter on July 28.