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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.

This story first appeared in the July 8, 2011 issue of WWD. Subscribe Today.

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.

Despite posting an overall comp increase of 1 percent, Gap Inc. is in a position similar to Penney’s. Citing the Gap brand’s 1 percent comp decline as particularly problematic, Morgan Stanley specialty retail analyst Kimberly Greenberger said the chain has been on a downhill spiral since Millard “Mickey” Drexler exited the company as ceo in 2002 in advance of his move to J. Crew Group Inc.

“Gap is trying to dominate the bottoms category. They think it’s key to turning sales trends but it’s a fine line,” she said, explaining that the quality of its tops business has declined and is at a disadvantage compared with lower-priced, trendier tops from H&M, Forever 21 and Zara.

With its fashionable, brightly colored collection of basics, American Apparel Inc. registered a 3 percent June comp gain on a constant currency basis. On an average U.S. dollar basis, comps increased 9 percent.

With about 40 percent of its stores located outside of the U.S., the struggling retailer, which received a $14.2 million cash infusion from a group of private investors in April, said it profited from favorable currency translation. Sales for the quarter were up 5 percent and the positive read on the company, which no longer reports comps on a monthly basis, helped lift its shares 12.9 percent to $1.05.

Although encouraging for the near universality of increases, the monthly same-store sales ritual has become substantially less important in the past few years as retailers including Wal-Mart Stores Inc. and more recently a trio of teen retailers — Abercrombie & Fitch Co., American Eagle Outfitters Inc. and Aéropostale Inc. — have withdrawn from the practice, preferring to report comps quarterly instead.

Citing a host of retail standouts like The TJX Cos. Inc, Ross Stores Inc. and Victoria’s Secret, Citi specialty analyst Jeff Black said that despite commodity cost headwinds, a number of midtier retailers are gaining momentum. Anchored by the “right product,” Black noted that these stores have been able to increase their sales and margins accordingly.

“The consumer is still very responsive to price,” he said. “Is June a symbol that we are off to the races? Probably not.”

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