Sunny September sales unlikely to brighten retailers' holiday prospects

[October 10, 2014]  By Devika Krishna Kumar and Siddharth Cavale

(Reuters) - A resurgence in spending helped by an improving U.S. economy bolstered back to school season sales for retailers in September, but stagnant wages may force more discounting in the coming months, keeping pressure on margins.

September's results showed surprise growth for apparel retailers as parents and students rushed to malls and stores for the latest fashions as schools began reopening across the country.

This, however, is expected to be short lived.

"The one roadblock still unfortunately is wage growth," said Ken Perkins, president of Retail Metrics. "That has been absent all year."

American workers' hourly wages in the private sector rose just 2 percent over the past 12 months, in line with what has been seen over the past few years, and was roughly flat in September, a Labor Department report showed last week.

Consumer confidence rose in August, translating into higher sales in September, but such gains may not be sustainable in the current climate, analysts said.

"I suspect it (consumer confidence) will bounce around. It gets affected by things such as the ISIL (Islamic State in Iraq and the Levant) threat and the Ebola threat and issues that make people worry," said Hugh Johnson, chairman and chief investment officer of Hugh Johnson Advisors.

Wal-Mart Stores Inc, a bellwether of the retail industry, warned in August that heavy discounting would likely continue into the holiday shopping season as consumers were still concerned about the cost of living and employment.

J.C. Penney Co Inc cut its third-quarter same-stores sales forecast on Wednesday, citing a "difficult retail environment."

Still, there are reasons to be optimistic, said Joel Naroff of Naroff Economic Advisors.

Discounting doesn't seem to be as high as it was at the same time last year, and retailers are a bit more comfortable, he added.

The holiday period between Thanksgiving and Christmas in 2013 was six days shorter than last year, prompting retailers to offer more promotions and deeper discounts than usual earlier in the season.

That earned the shopping season the moniker of being the most competitive since the financial recession in 2008.

SUNSHINE SEPTEMBER

Stronger job growth numbers, a drop in the unemployment rate and lower gas prices than a year earlier helped free up some spending in September.

A group of 10 retailers, excluding giants such as Wal-Mart, Target Corp and Best Buy Co, registered a 5.1 percent rise in September comparable-store sales, above last year's 4.5 percent, according to the Thomson Reuters same-store sales index.

Drug retailers Walgreen Co and Rite-Aid Corp were the index's strongest performers, posting better-than-expected comparable-store sales data for September, helped by higher prescription sales.

Costco Wholesale Corp reported a better-than-expected 6 percent rise in comparable sales for the month, helped by strong sales of fresh food items and soft lines such as apparel, accessories and footwear.

But apparel retailers were the surprise performers in September, analysts said

"Apparel retailers, surprisingly, had a better-than-expected month of the few that reported their monthly same-store sales. The only laggard was GAP," Perkins said.

Gap Inc said late on Wednesday that same-store sales in September were flat due to continued weakness in its Gap brand. Same-store sales at the brand have fallen for five straight months.
 

The company also said Chief Executive Glenn Murphy would retire in February, handing over the reins to its digital business head, Art Peck.

Analysts on average were expecting Gap to post a 1.1 percent increase in September same-store sales, according to Thomson Reuters I/B/E/S.

Gap shares plunged 12 percent on Thursday, weighing on the S&P 500 index.

The six apparel retailers tracked by the Thomson Reuters' index registered a 2.6 percent rise in September same-store sales, beating the average estimate of a 2.1 percent increase.

Victoria's Secret owner L Brands Inc and mall-based teen retailer Zumiez Inc were the index's top performing apparel retailers.

"Out of the woods and into the bright sunlight? Maybe not yet. But are they (apparel retailers) beginning to feel the sun beat on them? I think the answer is yes."

(Editing by Simon Jennings)

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