June Retail Sales: Don't Believe the Hype

NEW YORK ( TheStreet) -- June same-store sales may provide investors with a false hope of a retail recovery.

Overall, analysts are forecasting a 3.2% increase for June, which would mark the 10th consecutive month of rising comparable sales. Which sounds all well and good.

Likewise, June was bookmarked by two shopping events -- a later Memorial Day and 4th of July weekend -- creating a perfect storm for robust sales. Promotions at the end of the month and warmer weather also helped spur sales.

Still, the macro data paints a different picture. Unemployment remains stubbornly low, consumer confidence is weak and home buying demand hit new lows. There is also the growing concern over rising sourcing costs. This whirlwind of disappointing economic data and potential headwinds was reflected in the S&P Retail Index, which was down 13% for the month of June.

As a result, Goldman Sachs and Citigroup cut their forecast for several retailers on Tuesday, including big names like Home Depot ( HD), Wal-Mart ( WMT), Target ( TGT) and Macy's ( M).

Janney Capital Markets analyst David Strasser also recently cut estimates for retailers due to fears about spending in the back-half of the year.

And J.P. Morgan analyst Brian Tunick goes so far as to warn that "we could be on the cusp of a downward EPS revision cycle."

June will be a very promotionally-driven month, Stifel Nicolaus analyst Richard Jaffe said. This will put margin pressure on those retailers that lacked the initial merchandise margins to be able to promote profitably.

Jaffe is most concerned about teen retailers American Eagle ( AEO) and Abercrombie & Fitch ( ANF), which entered the month weighed down by inventory, crimping margins and driving price cuts.

Rival Aeropostale ( ARO), however, is in the position to benefit this month. "Unlike their key competitors, Aeropostale entered the month with inventories in sterling shape and as such, was not aggressive in utilizing price cuts to drive sales," Brean Murray analyst Eric Beder wrote in a note.

While Beder's same-store sales projections for the teen retailer are slightly below consensus, he still believes margin strength will allow management to boost earnings guidance.

The department store sector is also pegged to report the strongest results, with analysts predicting a 5% jump, according to estimates from Thomson Reuters. Within the segment, Kohl's ( KSS) and Nordstrom ( JWN) are expected to be the winners, with analysts predicting a 6.5% and 9.7% increase, respectively.

Among the discounters, BJ's Wholesale ( BJ)could come out on top, with analysts estimating a 5.2% gain for the month.

Target ( TGT) may also potentially modestly raise its second-quarter guidance, UBS analyst Roxanne Meyer said. The company currently forecasts second-quarter earnings of 91 cents a share.

In May, Target's same-store sales fell short of expectations, but not by much, and momentum improved in the back half of the month. Target's apparel segment has been running above the company's average for the past two months and is up against easy comparisons of negative low double digits last year, Meyer wrote.

Its biggest wild card is how it will be impacted by Wal-Mart's aggressive rollbacks.

Still, the true test of the consumer won't really be until the back-to-school season kicks into high gear in August.

-- Reported by Jeanine Poggi in New York.

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