June retail sales are a letdown

Article by: WENDY LEE , Star Tribune
Updated: July 5, 2012 - 9:42 PM

Even when sales rose, they often fell short of expectations. Analysts say this doesn't bode well for back-to-school season.

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Some of the nation's largest retailers, including Target Corp., posted weaker-than-expected sales in June as shoppers cut back on spending due to worries about the troubled job market.

Analysts called the results disappointing and said it spells trouble for the crucial back-to-school shopping season, the industry's second biggest revenue-generating event, which starts next month.

"The bigger picture is worrisome," said New York retail consultant Robin Lewis, who expects back-to-school sales to be flat or decline. "The consumer has been spending less and they are saving more. Manufacturing has been declining. All of this signals decreasing demand."

Consumers are so worried about unemployment and the European economy, they don't want to fill up their shopping carts, analysts said.

As a result, same-store sales at the nation's retail stores increased just 2.6 percent in June, compared with 8.1 percent a year ago, according to the research firm Retail Metrics/Bloomberg. That data, which measures sales at stores open at least a year, is a key indicator of a retailer's financial health.

At Minneapolis-based Target Corp., same-store sales increased a modest 2.1 percent, missing analysts' estimates of a 2.8 percent gain, according to Retail Metrics/Bloomberg. Shoppers bought more food, as well as apparel, health and beauty items, but continued to cut back on home-related purchases and in "hardlines," a category that includes electronics.

Other retailers like Costco Wholesale Corp. and Macy's Inc. posted weaker results. Costco's same store sales increased 3 percent, while analysts had hoped for 4 percent. Macy's same-store sales were up 1.2 percent, compared with Wall Street's expectations of 2.3 percent.

"In part, this was a function of a macroeconomic environment that is stagnant at best, and lower spending by tourists in cities such as New York," said Macy's CEO Terry Lundgren. June is typically a month where earlier summer items are significantly discounted by retailers. The fact that consumers aren't taking advantage of the discounts shows how uncertain they are about spending, analysts said.

But there were some bright spots in June's sales results. Limited Brands Inc., the parent company of Victoria's Secret, posted a 7 percent increase in same-store sales, beating estimates of 2.6 percent.

Luxury stores like Nordstrom also exceeded expectations. Analysts said this wasn't surprising, adding that it's middle-class consumers who are struggling to make ends meet -- not high-end shoppers who frequent stores like Nordstrom.

Last month, 28 percent of consumers said they earned less take-home pay compared to a year ago, according to Britt Beemer, CEO of America's Research Group. That's compared to just 16 percent in March.

"Middle America is truly being squished in this whole thing," Beemer said.

Shoppers will likely buy only the necessities for back-to-school and defer purchases to the Christmas shopping season, Beemer said. Three years ago, only 6 percent of customers bought back-to-school items during the holidays. Last year, that grew to 23 percent of consumers, Beemer said.

Despite its June performance, Target said it will meet the company's estimates for the second quarter, based on its July outlook and better-than-expected May sales performance. Target estimates that it will post second-quarter earnings per share of $1.04 to $1.14.

The company has not yet shared back-to-school sales information, said spokeswoman Jenna Reck. She referred to an April earnings call where CEO Gregg Steinhafel said Target would plan its business knowing that the economic recovery would continue to be slow and uneven.

"As we look ahead to the remainder of 2012, we remain confident in our strategy and operational plan but cautious about the macro environment," Steinhafel said.

Target shares closed at $57.15, down 63 cents, or 1.1 percent, on Thursday.

Wendy Lee • 612-673-1712