Back-to-School Falls Flat for Retailers

Apparel retailers took it on the chin in August, as consumers continued to shell out less for clothing and more for cars and home improvements. The typically lucrative back-to-school season came and went with little in the way of sales increases, forcing some retailers to push promotions to keep customers coming through the doors.

Overall, comparable sales rose just 2.9% compared to the prior August for companies reporting monthly sales. That fell short of expectations, and put a lot on the line for the end of the year.

Growth comes slowly
The good news is that there was growth, just not as much as the market would have liked to see. Gap (NYSE: GPS  ) increased comparable sales by 2% across its brands. While that was lower than the market had hoped for, it did show a few signs of strength. All three major brands saw increases, which was not true in July, when Banana Republic posted a year-over-year decrease in comparable sales. This month's 2% rise may be an early indicator that the brand is having better luck distinguishing itself from competitors like J. Crew.

Also on the bright side, L Brands (NYSE: LB  ) managed to increase comparable sales in all of its brands and channels. The company has had a few setbacks in the Victoria's Secret direct channel, but that business posted a 3% year-over-year increase in August. That's good news for the brand and should help it avoid too much discounting as we gear up for the holidays. Comparable direct sales are still down 1% year to date, but just like at Banana, it's looking like the end of the year might be better.

Bright spots
Teen denim retailer Buckle (NYSE: BKE  ) just managed to beat out expectations with a 1% comparable sales increase compared to 2012. That the company beat out market hopes is good, but the 1% increase is much smaller than the company managed this time last year. Buckle has had a fine 2013 so far, but the speed of growth has slowed considerably. Hopefully, August is a sign of things to come and not just a back-to-school bump.

Finally, the biggest winner was Costco (NASDAQ: COST  ) , which managed to put up a respectable 4% comparable sales increase in August. The warehouse brand continues to gain momentum, and its solid management team and growth plans have put it in a strong place for the end of the year and beyond. Year to date, Costco has increased comparable sales by 5%, and the company shows little sign of slowing down.

While I'm personally invested in Buckle -- and who doesn't love that dividend -- Costco is doing a pretty good job of winning the retail war, right now. As always, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


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  • Report this Comment On September 06, 2013, at 11:12 AM, LeKitKat wrote:

    who fell flat? All I see are bright spots and bright sides? If you could provide us with some of the losers and why the fell flat, it might provide some ideas for a buying op

  • Report this Comment On September 06, 2013, at 12:20 PM, TMFRedRam wrote:

    Hey LeKiKat,

    Thanks for reading.

    Good question re: what's flat here. The real flatness came compared to expectations and to gains last year in August. These companies are all putting up what I think are decent numbers, but the market was looking for more.

    With that said, the better bets are probably in home improvement, where consumers are reported to be spending all the cash they're not giving to these retailers.

    On a related note, one of the interesting shifts over the last two years is in retailers stopping their monthly reporting -- especially if they hit a rough patch. Those retailers -- American Eagle, Kohl's, Abercrombie, etc. -- are more likely to have surprises later down the road since they only stick their necks out once a quarter.

    You might look to recent sales trends there to try and find some potential value.

    Cheers,

    Andrew

  • Report this Comment On September 06, 2013, at 12:22 PM, TMFRedRam wrote:

    *LeKitKat. Missed that first 't'. You'd think I'd have learned to spell it in my sleep, thanks to Android

    .

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