Heat May Have Taken Steam Out of Retail

Wal-Mart's bullish preview looks unlikely to carry the space.
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In one of the hottest Julys on record, Wall Street analysts believe retail sales cooled off from the blowout pace logged in June. Still, a report from

Wal-Mart

(WMT) - Get Report

has investors hoping for some upside surprise.

With retail chains expected to report same-store sales Thursday morning, the International Council of Shopping Centers is expecting an average gain of 4% compared with the same month last year.

In June, sales figures were boosted by a seasonal shopping surge, along with easier comparisons to last year. ICSC recorded an overall gain of 5.2% for the month, based on its tally of results from more than 70 national retail chains. It marked the strongest monthly improvement since May 2004, when same-store sales jumped 5.7%.

While July results also should benefit from an easier comparison -- last year's 3.1% gain in July -- and healthy consumer spending, retailers were no longer enjoying the pent-up demand that drove results the month before.

"Given the outsized performance in June, we expect some deceleration in results this month," Bernstein & Co. analyst Emme Kozloff said in a research note.

Observers cited record heat and humidity in July as the biggest factor affecting shopping trends. ICSC's Michael Niemera, chief economist and director of research, 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."

Ken Perkins, president of Retail Metrics LLC, said he is expecting his same-store sales aggregate index to increase 4.2% in July. While his expectations for a handful of retailers were lowered as the month progressed, that downside was offset last weekend when Wal-Mart, the world's largest retailer, said it expected its monthly comps to reach the high end of its expectations.

Wal-Mart said over the weekend that July same-store sales are expected to have risen 4.4% from a year ago, at the high end of its previous range of 3% to 5%. In June, the company posted a comp of 4.5%.

Wall Street is expecting its chief competitor,

Target

(TGT) - Get Report

, to report a July same-store sales gain of 5.6%.

Meanwhile, forecasts remain high for two teen apparel retailers who have led the sector in sales trends in recent years.

American Eagle Outfitters

(AEOS)

is expected to post a gain of 15.5% for the month, while

Abercrombie & Fitch

(ANF) - Get Report

is expected to show a 28.6% surge.

Aeropostale

(ARO)

is expected to cool down with a July sales gain of 1.8%, and

Pacific Sunwear

(PSUN)

is expected to report a gain of 3.6%.

"The hot, humid weather across most of the U.S. this month is sort of a double-edged sword," Perkins said. "It will help the hard-line retailers who were able to blow out all kinds of inventory, like air conditioners, fans, pool accessories, beverages and things like that. But it may have hurt some retailers with regard to their back-to-school sales as they got their inventories in place, the weather may delay some of those purchases.

"I think it's going to be a decent month overall, and I would be really surprised if the retailers don't come up with some upside surprise," he added.