In July, retail spending was mixed, with profits for many lower-end chains dropping as their customer-base felt the strain of the faltering economy, while others thrived on new customers looking for discounts. Data shows that consumers are still willing to spend when given a compelling reasons, such as discounts, new products, or the necessary back-to-school shopping.
Limited Brands (NYSE:LTD) and Hot Topic (NASDAQ:HOTT) both raised their second-quarter outlooks after posting better-than-expected sales of 6% and 7.3%, respectively, with Hot Topic cashing in on Harry Potter merchandise as the final film in the franchise was released in July. Target (NYSE:TGT) sales gained 4.1% on back-to-school sales, beating analysts’ expectations of a 3.7% gain.
Costco (NASDAQ:COST) sales rose 10% on stronger foreign currencies and the 30% increase in gas-price inflation, but excluding those factors, the company’s sales only rose 5%, falling short of analysts’ estimates of an 8.6% gain. While many consumers flocked to Costco to save money on necessities like food, the company also did well on certain discretionary items like women’s apparel and jewelry, though consumer electronics sales were down.
But lower-end retailer Cato Corp. (NYSE:CATO) saw apparel and accessories sales fall off in its second quarter. Gap Inc. (NYSE:GPS) sales fell 5%, with its Old Navy and Banana Republic brands declining 3% and 4% respectively, and Gap stores falling 6%. However, the company still expects to turn a profit higher than analysts’ expectations.
Factors effecting sales in July included hot temperatures, which helped retailers (NYSE:XRT) sell spring and summer merchandise, and early delivery of fall clothing and back-to-school merchandise, which had shoppers paying full prices to get a head-start on their fall shopping. As the summer ends, back-to-school purchases will give retailers even more of a boost. However, apparel retailers are waiting to see whether their usually busy season will be affected by higher prices incurred by the higher cost of cotton.
While August and September tend to be busy shopping months, a recent Commerce Department report showed that consumer spending declined in June for the first time in nearly two years as Americans began saving more, and that trend could continue as the economy remains close to a tipping point, looking down at another possible recession. Gas prices have also been picking up recently, though still below May’s high of about $4 a gallon, and averaged $3.71 a gallon last week.