By and  on July 7, 2011

Falling gas prices, rising temperatures and ample promotions shored up consumer demand last month, but the common denominator for the many retailers posting robust comparable-store June sales gains was a healthy mix of stylish merchandise.



With few exceptions, stores far exceeded expectations for the month, but with price hikes and pressured margins coming in the second half of the year, analysts remained cautious.

“Things haven’t changed too much in terms of the economic recovery,” said Arnold Aronson, Kurt Salmon’s managing director of retail strategies. “The biggest challenge outside of the recession itself is price increases.”

This will “set the stage” for an extremely significant back-to-school selling season, he said, adding that retailers will need to offer product that fuses fashion with a sharp price point.

Aided by aggressive promotions as well as a Memorial Day calendar shift, last month’s comps rose 6.9 percent over June 2010, according to the International Council of Shopping Centers, which estimates July comps to gain between 4.5 percent and 5.5 percent.

Even with the certainty of inflation ahead, investors took the June results as affirmation of growing consumer demand, sending the S&P Retail Index to an all-time high of 559.79 before it ended the day at 557.26, up 2.4 percent. The previous high of 552.11 was reached on May 13 but doubts about the strength of the economic recovery dragged it down 10.5 percent in the month that followed. The retail numbers, combined with a larger-than-anticipated drop in first-time jobless claims, helped boost the Dow Jones Industrial Average 0.7 percent, to 12,719.49.

“Overall, June results should come as no surprise — discounting works,” said Sherif Mityas, a partner in A.T. Kearney’s retail consulting practice. “What’s positive is that there was strength across a demographic spectrum. We’re at a point where we are seeing winners and losers [in each segment].… The majority of the success revolves around actual merchandise.”

Coming off a 6.7 percent comp gain, Macy’s Inc. is a testament to this, according to Terry Lundgren, the firm’s chairman, president and chief executive officer.

“Growth came from across the company — Macy’s and Bloomingdale’s stores and online sites,” Lundgren told WWD. “We were not more promotional. We broke away from the pack.”

However, Macy’s couldn’t escape inflation. “Prices were a little bit higher in the apparel categories but that didn’t seem to hurt business,” he said. “Higher quality and more fashion-related businesses are less likely to be impacted in a material way by the inflationary pressures. There was no major impact on margins for us.”

Rival J.C. Penney Co. Inc., however, did not fare as well, with a 2 percent comp gain that fell below estimates. Describing the company as “shockingly promotional,” Citi broadlines analyst Deb Weinswig said the retailer was overstored in basics, which was related to being “too focused on price point.”

“The consumer already has a closet full of basics,” she said, explaining that shoppers would likely shop at fast-fashion outposts for cheaper basic items.

Calling the selling environment “softer than anticipated,” Penney’s lowered its second-quarter earnings outlook to 6 cents a share, against earlier projections of earnings per share in the range of 20 cents to 24 cents.

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