When I was a kid, the end of the summer was miserable. Waiting for school to start, finishing summer reading, and trying to fit in all the fun I could. Back-to-school shopping happened, but I don't think I ever got much more than a new pencil, notebooks, and one of those planners that I always intended to use and never did. My, how times have changed. The National Retail Federation has reported that average K-12 back-to-school spending is going to hit $689 per family. Let's see which companies are set to profit from this midyear boon.
Dressing for success
About 55% of that total is going to be spent on clothing and shoes for little scholars. It looks like Gap (NYSE: GPS) is already making the most of that chunk of change. The company just released its July sales figures, wowing investors. According to the company, July sales rose 12% versus last year. This was largely due to a 10% increase in same-store sales. Gap and Old Navy brand stores had 13% and 12% increases, respectively.
The stock jumped 10% in early trading, due to the company's revised earnings per share outlook. EPS in the second quarter is now forecast to be $0.47-$0.48, which is more than a 27% increase on analysts' previous earnings estimates.
Jeans retailer Buckle (NYSE: BKE) has yet to profit from the back-to-school rush. Same-store sales floundered in July, falling 0.1% compared to last year. However, the company has opened a number of stores over that period, resulting in an overall revenue growth of 2.4%. There was no change in EPS announced with the drop, so investors will have to wait until later this month when second-quarter earnings are announced to find out details.
Tools for the classroom
The other 45% of back-to-school spending is going toward electronics and more traditional supplies. This spending helped Target (NYSE: TGT) increase revenue 3% last quarter, driven by a same-store sales increase of 3%. The momentum from the end of summer should help the retailer beat earnings estimates again this quarter. Target has surprised analysts for the past four quarters, so exceeding the $1.01-per-share estimate this quarter is well within the realm of possibilities.
Office supply retailer Staples (Nasdaq: SPLS) is pushing heavily on back-to-school spending, as well. Staples has said that it is optimistic about this year's school spending, and has introduced a number of in-store programs to support those sales. The company has also expressed a favorable outlook on Nexus 7 sales, which could be a big part of that electronics category in back-to-school spending.
The trend
As analysts have pointed out, an increase in July sales isn't the end-all, be-all for companies. July is traditionally a weak month, with a low overall impact on sales and earnings. But the trend can be telling. An increase in sales during July can indicate a strong upcoming season, as retailers get ready for the holidays. Also keep in mind that the back-to-school season is not just a July phenomenon. Staples has introduced a back-to-school discount program, which the company will run through the middle of September.
The bottom line
Keeping an eye on monthly sales figures can tell you a lot about where a company is headed. It can also give you a heads-up on earnings surprises, allowing perceptive investors to get a jump on the rest of the market. Right now, I really like the things that are happening at Gap, and this sales increase only makes me happier with its performance.
With a strong prediction for back-to-school sales, it makes sense to look at some traditional retailers who could have strong quarters. As always, be careful about broad generalizations drawn from these ups and downs in spending.
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