Tax rebates, sunny weather and store promotions helped retailers post stronger-than-expected sales in June, but some question whether the gains will extend into the crucial back-to-school season.
With consumers squeezed by higher gas and food prices, most of the gains in June went to discount stores. The No. 1 retailer, Wal-Mart wmt, with a 5.8% increase in same-store sales, accounted for more than half the overall increase. Costco Wholesale cost, BJ's Wholesale Club bj and TJX tjx, which runs the T.J. Maxx and Marshalls chains, enjoyed strong gains as well.
Some clothing retailers benefited, such as The Children's Place plce, which more than doubled its predicted sales gain to 16%. Still, sales remained sluggish at other apparel stores, including Limited Brands ltd, which owns Victoria's Secret and Bath & Body Works, and Gap gps, which owns Old Navy and Banana Republic as well as its namesake stores.
The last big batch of tax-rebate checks is in the mail Friday. How big their impact will be — and how long it will last — isn't entirely clear. Gap, which reported a 7% decline in same-store sales, better than the 11.6% drop that was forecast, says it can't directly tie its sales results to the tax rebates, says spokeswoman Kris Marubio.
"The tax rebates that gave discount retailers a big boost in June will remain the driver of consumer shopping for the next few months," Frank Badillo, senior economist at TNS Retail Forward, said in a statement. "Strip out the tax rebates, and shoppers are in pretty bad shape."
The rebate boost may not linger much longer, warns Sarah Henry, an analyst at MFC Global Investment Management.
"There may be a bit of spillover in July," she says. "I think once we get to the back-to-school season, which starts in August, it will be more of a true measure of the shopper."
Michael Brown, a retail strategist at consulting firm Kurt Salmon Associates, agrees that the effect of the rebate checks will likely extend for only about a month more. But he holds out some optimism.
"What we're really seeing more is about the elasticity of the consumer pocketbook," Brown says.
"People have money to spend. It's just a matter of where they spend it," he says. "We're going to be dealing for the foreseeable future with gas prices, rising food prices and the credit crunch, but it doesn't mean the consumer's going to stop shopping."
RBC Capital Markets analyst Howard Tubin says retailers must find a way to differentiate themselves and offer excitement if they want to outperform their competitors. For the rest, he says, difficult sales trends probably lie ahead.
Contributing: Jayne O'Donnell; Reuters