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
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
Tools for the classroom
The other 45% of back-to-school spending is going toward electronics and more traditional supplies. This spending helped Target
Office supply retailer Staples
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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