Every retail category, including discounters, department stores and… (Arkasha Stevenson, Los…)
Retailers beat June gloom last month, delivering surprisingly strong sales results thanks to lower gas prices, widespread discounting and warm weather, which led many shoppers to hit the stores for summer clothing.
With the important back-to-school season next on the retail calendar, consumers gave merchants the kind of month they had been hoping for after a good but not great first half of the year. Combined with better-than-expected labor market data Thursday, the retail report led to a stock market rally and helped lift optimism a day before U.S. employment figures were released.
"It was a very robust month. It's the type of momentum that the retailers would like to build and carry over into back-to-school," said Ken Perkins, president of research firm Retail Metrics Inc. Combined with other improving economic trends, "it seems to suggest that we're pulling out of a soft patch and there's going to be a stronger second half of economic growth."
Major chain stores posted a 6.5% year-over-year increase in sales, better than the 4.9% that analysts had been expecting, according to Thomson Reuters' tally of 25 retailers. Every retail category, including discounters, department stores and apparel sellers, posted gains that beat estimates.
With retailers offering their deepest discounts of the year so far, many shoppers said they'd been spending more freely in recent weeks.
Leah Herndon, a stay-at-home mom from Pacific Palisades, went on a bit of a shopping spree last month, buying workout clothes, shoes, jeans and tops for herself and summer clothing for her two daughters.
"There are just so many sales right now that I took advantage," Herndon said at the Third Street Promenade in Santa Monica on Wednesday. "My kids and I all needed stuff desperately. I think we all got our fair share."
Lily Stofman, a recently graduated USC pre-med student, also indulged in June, buying herself a new fall wardrobe.
"In the past few years I wasn't shopping at all, but recently I've picked it up," the 25-year-old from West Hollywood said. "I just noticed gas was $3.83 and I was pretty excited. It just feels better."
June's top performers reflected a well-rounded mix of stores. Warehouse club Costco Wholesale Corp. said sales rose 14%, apparel company Limited Brands posted a 12% gain and teen retailer Zumiez Inc. said sales were up 9.8%.
Luxury retailers again had a standout month, with sales up 12.5% at Neiman Marcus Inc., 11.9% at Saks Inc. and 7.9% at Nordstrom Inc.
"Luxury is strong and only going to get stronger," said Sherif Mityas, a partner at management consulting firm A.T. Kearney. "You're really seeing a broad return of the luxury shopper and the next tier down, which is the aspirational shopper."
Among retail shares Thursday, Kohl's Corp. surged $3.69 to $55.78, Target Corp. jumped $3.23 to $51.67, Nordstrom gained $2.08 to $50.56 and Limited Brands rose $1.05 to $40.36.
Monthly results are based on sales at stores open at least a year, known as same-store sales and considered a good barometer of a retailer's health because it excludes store openings and closings.
Analysts noted that they were still waiting for retail sales to stabilize and for strong spending to come from all economic levels.
"Roller-coaster trends in monthly retail sales have become the norm in this economic recovery cycle," Brian Sozzi of Wall Street Strategies wrote in a note to investors. "The spending recovery is far from consistent."
He said that "in such a feast-and-famine environment," retailers will report solid sales numbers in the weeks prior to specific holidays or when the discounts are deep, which leads to volatility.
Economists say a drop in the nation's unemployment is necessary in order to fuel consumer spending, which accounts for more than two-thirds of U.S. economic activity.
On Thursday, the Labor Department reported that the number of Americans who made first-time claims for unemployment benefits dropped to 418,000 last week, the lowest level in seven weeks. June unemployment figures will be released Friday.
Retailers are looking ahead to the back-to-school season, which begins this month and is typically the second-largest sales driver of the year (after the year-end holidays), accounting for 16% of the industry's annual sales.
The International Council of Shopping Centers on Thursday forecast a year-over-year increase of 3% in total sales for the three-month back-to-school period.
That's a modest estimate, and analysts said retailers will have their work cut out for them.
"Clearance inventories of summer-related merchandise have largely been sold through," Perkins of Retail Metrics said. "The key question looms as to what extent will the vast majority of consumers in the middle-to-low-income space be willing to pay full price in July."
But retailers may need to offer deals at the expense of profits to entice discount-driven shoppers.
At the Third Street Promenade, William Cole, a television editor from Culver City, had "splurged" on a book but said he wasn't shopping for anything else.
"I'm very selective about what I purchase," he said. "I pick up stuff every once in a while, but I'm looking for sales and I don't buy as easily as I used to."