U.S. retailers rely on deep discounts to win back-to-school shoppers

RetailReuters

Many U.S. retailers reported stronger-than-expected August sales on Thursday, but they had to use steep discounts to attract back-to-school shoppers.

The unusually high level of discounting raised concerns about margins for this quarter. It also showed that apparel chains might have to keep offering bigger incentives at a time when consumers are spending more on their homes, cars and other durable items.

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The level of discounting "was certainly higher than last year," said Ken Perkins, president of consulting firm Retail Metrics. "They seem to be above the norm. That was emblematic of just the lack of demand for back-to-school."

The back-to-school season is the second-biggest selling period of the year for U.S. retailers, behind the winter holidays.

Analysts were estimating a 3.1 percent rise in August sales at stores open at least a year at the retailers tracked by Thomson Reuters I/B/E/S. Most, including Costco Wholesale Corp and Buckle Inc , beat expectations for the month, but L Brands Inc , parent of the Victoria's Secret lingerie chain, missed them.

"What you see is very strong durable goods spending" hurting demand for items like apparel, said Michael Niemira, chief economist of the International Council of Shopping Centers, which expects same-store sales to rise about 4 percent in September.

Many consumers are buying cars and houses to take advantage of still-low interest rates but are holding back on shirts, dresses and shoes. In the run-up to the year-end holiday season, this does not bode well for many retailers.

The Standard & Poor's Retail Index was up 0.6 percent on Thursday morning, outpacing a 0.3 percent gain for the broad S&P 500 .

Same-store sales are an important measure of a retailer's performance because they strip out the effects of store openings and closings.

Fewer than a dozen U.S. retailers report monthly sales, down from a peak of 68 in 2006. In the years since, big names such as Macy's Inc , Wal-Mart Stores Inc and Best Buy Co Inc have dropped out of the same-store sales index.

L Brands' same-store sales rose 2 percent in August, falling short of the analysts' average estimate of a 2.2 percent gain. The company is expecting low single-digit percentage increase for September.

Mall-based apparel chain Cato Corp's same-store sales fell 2 percent, while analysts expected a 3 percent drop.

"We remain cautious in regard to the remainder of the year," Chief Executive Officer John Cato said in a statement.

Buckle, which caters to teenagers, reported a 1 percent rise, beating estimates of a 0.4 percent increase.

Costco's same-store sales, including those of gasoline, rose 4 percent, just beating analysts' expectations of a 3.8 percent gain. Demand was strong for health and beauty aids and food, but weak for electronics, the largest U.S. warehouse club chain said.

Stein Mart Inc also topped same-store sales forecasts for the month, reporting a 3.8 percent rise on strong demand for everything from linens to women's dresses.

Walgreen Co , the largest U.S. drugstore operator, reported a 4.8 percent increase, while analysts had expected only a 2.8 percent rise.

(Reporting by Dhanya Skariachan; Additional reporting by Maria Ajit Thomas in Bangalore; Editing by Lisa Von Ahn)