By  on September 3, 2010

If you promote it, they will come. And they did, sort of.

Tantalized by tax-free holiday incentives and steep markdowns, consumers gave retailers better-than-expected comparable-store sales results in August, according to Thursday’s data.


But small sales gains over dismal August 2009 comps did little to quell analysts’ concerns that both the third quarter and holiday will be challenging as stores “lap” more positive, or at least less negative, fall and holiday comps.

“We’re really not growing significantly,” said John Long, retail strategist at Kurt Salmon Associates, who expressed concern about a lack of “dramatic” improvement. “Growth during the holiday season should be flat to 2 percent, at best.”

This will translate into “earnings pressure,” as some retailers will likely mark down “deeper than planned,” he said, noting investors will be keeping a close eye on retailers’ top-line growth, which has almost universally been weaker than their bottom lines in the second quarter. “We haven’t seen any marked trend of improvement in the economy.”

While August results weren’t exactly momentous, they did defy most analysts’ expectations of a comp increase ranging from 1 to 3 percent.

Thomson Reuters put the gain for the month at 3.3 percent and the International Council of Shopping Centers pegged it at 3.2 percent over last year.

“Keeping with recent trends, the sales pace in August was relatively steady across the various segments; however, hotter-than-normal weather throughout the month may have curbed some consumer interest in seasonal merchandise,” said ICSC chief economist and director of research Michael Niemira. “Back-to-school spending, based on comments by retailers, appears to be fair to good.”

“It’s a half-full, half-empty situation,” said Stephen Hoch, Wharton School marketing professor and director of the Baker Retailing Initiative.

Last month’s numbers are more positive than those of a year ago, but well below August 2008 levels, he said, adding that consumers need, but have yet to receive, a catalyst to buy.

“Where’s the good news? If you want people to be spending, you want them in a good mood,” he said, noting the prospect of possible increases in taxes in January, higher sourcing costs and midterm elections are likely to only dampen the already dour mood.

Those doubts took a respite on Wall Street Thursday as stores’ results helped push the S&P Retail Index up 2.2 percent to 420.59 and, on top of Wednesday’s 3.7 percent leap, produce the best two-day showing for retail stocks since the first two days of June 2009. The retail stock indicator outperformed the overall market on a day when the Dow Jones Industrial Average rose 50.63 points, or 0.5 percent, to 10,320.10. Among the comp filers to benefit from the surge were Saks Inc., up 10.8 percent to $8.22; Wet Seal Inc., 8.2 percent to $3.29, and Nordstrom Inc., 8.1 percent to $32.76.

While August did show some bright spots in the department store and mass merchant sectors, Madison Riley, retail strategist and senior partner at Kurt Salmon Associates, pointed to the uneven results in the teen segment as “indicative of the volatility” of the overall retail market.

In the thick of b-t-s season, teen favorites Aéropostale Inc. and Buckle Inc., with respective declines of 1 percent and 3.5 percent, should have posted stronger results, despite tough comparisons, he said.

Aéropostale’s comps surprised Majestic Research analyst Chandi Neubauer, who noted the value-oriented retailer had not reported a negative August comp since 2002.

Still, the analyst chalked up the results to consumer frugality, as well as a highly promotional environment to which players like Abercrombie & Fitch Co. are reacting.

“Abercrombie is really competitive on price,” she said, explaining teens may “perceive” that with no price differentials, A&F has “higher brand cachet” and makes the better “quality” garment.

Neubauer said fashionable product helped Zumiez Inc. post a strong 9.1 percent comp, while on the flip side, tone-deaf merchandise at Hot Topic Inc. pulled down comps 3.7 percent.

“Hot Topic is only as good as its next license,” she said, adding that in her view the hard rock and Goth-inspired chain is “not a viable concept.” Since Hot Topic lost exclusivity on its Twilight license, sales began to suffer.

When discounters and department stores began carrying Twilight product, “teens breathed a sigh of relief that they didn’t have to go into that weird store,” she said.

Conceptual problems aside, retailers “held their ground” in August and may feel more confident once midterm elections are over and there is more certainty, the analyst added.

“The consumer goes in cycles,” said Bryan Eshelman, a managing director at AlixPartners’ retail practice. “The human psyche wants there to be positives.”

With a few hurdles ahead and no signs of material changes in unemployment, the second half will be a test for retailers and consumers.

“If I had to use one word to sum up the fall, it would be ‘concerned’,” he said. “I find that the underpinnings of consumer spending remain weak.”

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