Hot weather, hot sales for retailers

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: July 7, 2011 - 10:30 PM

Even Target, which has missed expectations in several recent monthly sales reports, offered Wall Street a pleasant surprise.

Spurred by warmer weather, lower gas prices and discounted merchandise, shoppers gave the retail industry a welcome boost in June.

Target Corp. in particular saw numbers rise in both consumer traffic and size of transactions last month. The Minneapolis-based discounter said same-store sales rose a strong 4.5 percent compared with a year ago.

That beat Wall Street expectations of 3.1 percent and sent shares of Target stock soaring $3.23 to close at $51.67, its highest close since May 11.

And Target wasn't alone. Limited Brands Inc. saw same-store sales jump 17 percent at its Victoria's Secret chain and 12 percent companywide. Gap Inc. beat an expected 2.4 percent decline with a 1 percent gain, thanks to a 3 percent increase at its upscale Banana Republic chain. Wisconsin-based discounter Kohl's said its same-store sales increased 7.5 percent.

Macy's was up 6.7 percent and Saks was up 11.9 percent, further cementing the notion that the luxury sector has recovered from the Great Recession.

"I think there was a little bit of consumer psychology at play as the price of gas eased and the stock market came back a little," said Dave Brennan, co-director of the Institute for Retailing Excellence at the University of St. Thomas in St. Paul. "But we'll see if that's sustainable. That is the real question."

Ken Perkins of Retail Metrics said June same-store sales were up an average of 5.6 percent across the 25 chains he tracks.

"Deep discounting and widespread promotions across the industry lured consumers into stores in June," Perkins reported. "Hot seasonal weather helped boost summer clearance merchandise."

But the retail radar continues to blip with warning signals, including sustained high unemployment, no sign of a housing recovery and rising commodity costs, including raw materials and food.

The Discover U.S. Spending Monitor this week reported that consumer sentiment declined "significantly" in June with its largest one-month drop ever.

And for the first time in two years, the survey found more than half of its respondents -- 51 percent -- said their personal finances were worsening. In June, 48 percent answered yes.

But at Target, Chief Executive Gregg Steinhafel said the nation's second largest discounter was driving traffic with "the right combination of wants and needs."

According to Target's monthly report, grocery sales were its best-performing segment with same-store increases in the mid-teens, followed by health care and beauty in the mid to upper single digits. Apparel was described as "quite strong" while electronics and home products decreased slightly.

Target's upbeat sales picture reversed a pattern from earlier this year when sales fell short of Wall Street expectations and were often in the low single digits.

"This is what management said to expect," said stock analyst Matt Arnold of Edward Jones & Co. "As the year goes on, more stores are going to be remodeled and more customers will be holding and using the Target RedCard. This should build to a gradual ramp up in sales."

The next big economic indicator for Target and other retailers is the back-to-school season that will start later this month.

Wall Street often sees back-to-school traffic as a harbinger for the Christmas holiday season. Strong sales in August and September are believed to lead to strong sales in November and December.

"The real key is August," said Brennan, noting that sales during a typical back-to-school season totals $40 billion to $50 billion while a holiday season is in the $450 billion neighborhood. "It's important, but not nearly as important as holiday spending."

David Phelps • 612-673-7269

SUMMER SIZZLE

June same-store sales, year over year:

Costco 14 percent

Limited 12 percent

Saks 11.9 percent

Kohl's 7.5 percent

Macy's 6.7 percent

Target 4.5 percent

Banana Republic 3 percent

Gap Inc. 1 percent

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