Retailers Post Lukewarm Sales for July

U.S. retailers Thursday reported July sales that largely met muted expectations, rebounding from a disappointing June, helped by early back-to-school shopping for computers, clothing and bedding.

Wal-Mart Stores Inc. (WMT) and other retailers had given cautious forecasts for the month because last year's July sales were inflated by child tax credits (search), making it more difficult for retailers to show strong year-over-year improvement. Retailers have also warned that steep gasoline prices are likely to curb consumer spending this summer.

Target Corp. (TGT), the second-largest U.S. discount chain, posted better-than-expected sales for the month, but Gap Inc. came in well below Wall Street expectations, and the apparel chain slashed its profit forecast.

"July was further confirmation that fashion, color and newness are going to rule for both back-to-school and fall," said JB Hanauer & Co. retail analyst Eric Beder. "The discounting sector showed some pockets of strength but still remains somewhat on the sidelines for the season."

With just three months left before the U.S. presidential election, analysts and politicians alike are watching consumer spending closely. Disappointing June retail sales raised concerns about the health of the U.S. economy, but auto sales recovered in July and analysts widely expected retailers to show some improvement as well.

Analysts on average expected retailers to show a 3.2 percent increase in July sales at stores open at least a year — also known as same-store sales (search) — according to research firm Thomson First Call. In June, same-store sales rose just 2.8 percent, missing expectations for a 4.2 percent increase.

Wal-Mart, the world's biggest retailer, said July same-store sales rose 3.2 percent, slightly better than Wall Street forecasts for 3.1 percent, but much of the strength came from the Sam's Club (search) warehouse stores instead of its namesake discount stores, which account for the bulk of sales and profits.

The retailer said back-to-school sales were off to a good start, with bedding for college dorm rooms and clothing among the top-selling categories. Warmer July weather in parts of the United States also spurred sales of summer merchandise, which had been weak in June.

July is typically a month of clearance sales to make room for fall merchandise, and early back-to-school shopping. But clothing stores reported mixed July demand, particularly in the notoriously fickle teen-oriented market.

Gap (GPS) posted a surprising 5 percent drop in July same-store sales, well below Wall Street forecasts for a 0.9 percent increase. The largest U.S. apparel chain now expects second-quarter earnings in the range of 19 cents to 21 cents per share, below the Reuters Estimates consensus forecast of 28 cents per share.

Limited Brands Inc. (LTD) said its July same-store sales were flat, missing Wall Street expectations for a 2.1 percent increase. However, American Eagle Outfitters Inc. reported a 21.7 percent jump in same-store sales Wednesday, and raised its second-quarter profit forecast.

Kohl's Corp. (KSS) reported a worse-than-expected 4.2 percent decline in July same-store sales but raised its quarterly profit forecast. The retailer said store inventories were down sharply from a year earlier, leaving it with less merchandise on clearance racks and boosting profits.

Sears, Roebuck and Co. (S), the largest U.S. department store chain, reported its fourth straight month of declining same-store sales as apparel demand remained weak.