Weather, Deals Lure Shoppers to Retailers

Discounts and warm weather drew U.S. shoppers to malls in July, helping many retailers report healthy sales gains in what is typically a clearance month ahead of the back-to-school season.

Most retailers offered discounts in July to clear out leftover summer merchandise and make room for back-to-school items and other fall goods. Warm weather also helped some early back-to-school shopping. The United States had its hottest July in more than 50 years, said Planalytics, a company that tracks weather for businesses. "Retailers focused on back to school a little earlier this year and increased their promotions," Tom Clarke, director of consulting firm AlixPartners' global retail practice, said on Thursday. "The trend has been: The first one out gets more (market) share."

Some of the early sales winners of the month were warehouse club operator Costco Wholesale Corp NASDAQ:COST), which topped same-store sales estimates for the first time since February; teen apparel chain American Eagle Outfitters Inc (NYSE:AEO); and Victoria's Secret parent Limited Brands Inc (NYSE:LTD). Limited Brands reported a bigger-than-expected 8% rise in July same-store sales and raised its earnings outlook for the second quarter ended on July 28. It now sees a profit of 46 cents to 48 cents a share for the period, up from its prior outlook of 40 cents to 45 cents.

While American Eagle has stopped reporting monthly results, it also raised its profit outlook for the second quarter after reporting much stronger-than-expected sales. Its revamped merchandise has struck a chord with its young clientele.

American Eagle "showed the ability to entice customers with new back-to-school merchandise along with significant deals on clearance tables," Nomura analyst Paul Lejuez said. Janney Capital Markets analyst Adrienne Tennant expects American Eagle's "positive momentum to continue into the heart of the back-to-school selling season."

Not all teen apparel chains performed well. Abercrombie & Fitch Co (NYSE:ANF), which has faced some criticism from Wall Street for ill-timed international flagship store openings and out-of-whack inventory, forecast quarterly earnings at about half what analysts expected after sales in stores open at least a year fell 10%. The sales report in July, typically one of the lowest volume periods of the year, will give investors an early read on U.S. demand at the start of the second-biggest selling season of the year after the winter holidays.

Analysts expect same-store sales to show a rise of 1.5% in July, compared with a year-earlier increase of 4.2%, according to Thomson Reuters I/B/E/S. Retailers ranging from discounter Target Corp (NYSE:TGT) to high-end department store chain Saks Inc (NYSE:SKS) are also expected to report closely watched same-store sales on Thursday.

Few on Wall Street expect July numbers to dispel concerns about the U.S. economy, which has been cooling after showing some strength early in the year.

"Given the uncertain macro backdrop and several data points indicating recent global slowdown in Europe and Asia, expectations are low," Jefferies analyst Randal Konik said in a note this week.

Federal Reserve officials recently described the U.S. economy as having "decelerated somewhat." That marks a change of tone from its previous assessment in June, when it said the economy had been "expanding moderately."