U.S. retailers report tepid sales for June

updated 8:09 p.m. ET July 12, 2007

NEW YORK - Retailers’ hopes for a successful back-to-school shopping season grew dim Thursday after they reported generally modest sales gains for June, extending a string of disappointments that began last winter.

As merchants reported their sales results Thursday, it was clear that consumers’ uneasiness about higher good and gas prices and the weakening housing market was forcing many to think think twice before spending on non-essentials — although consumer electronics like MP3 players and flat-screen TVs had a good month.

The disappointments included department stores like Macy’s Inc. as well as apparel chains such as AnnTaylor Stores Corp. Discounters fared well, particularly Wal-Mart Stores Inc., whose renewed emphasis on low prices helped drive sales gains analysts’ expectations.

Sales were not as weak as some analysts feared, but the fact that June, the second most important month in the retail calendar, was nonetheless sluggish did not augur well for back to school shopping that begins this month.

Most obvious for most consumers is how much they’re paying for gasoline — prices at the pump that fell after peaking in late May are again rising, and the national average price for a gallon of unleaded regular is above $3.

And although teens were spending again in June after a slower spring, analyst said it is still too early to tell how the season will fare. The improvement was reflected in reports from retailers including Pacific Sunwear of California Inc. and Abercrombie & Fitch. Despite the concerns about back-to-school, J.C. Penney Co. said it saw a good response to its early fall merchandise.

“The picture for the consumer hasn’t changed much,” said John Morris, managing director at Wachovia Securities. “The consumer is facing a lot of headwinds.”

Morris noted that the spending outlook is also becoming more uncertain because an increasing number of schools are starting classes later. Teens usually wait to do the bulk of their shopping until after school starts because they want to see what their friends are wearing.

The International Council of Shopping Centers-UBS sales tally of 50 stores rose 2.4 percent in June, compared to a 3.0 percent gain in the year-ago period. The tally is based on same-store sales, which reflect business at stores open at least a year and are considered a key indicator of a retailer’s health.

June’s results extended the slowing trend retailers have experienced since February.

For some stores, June results were depressed in part by a shift in the calender that moved the Memorial Day weekend business into May. But retailers of what are known as discretionary merchandise such as apparel and home goods are also coming under increasing pressure as consumers are forced to pay more for food and gas. The still-weakening housing market is also making shoppers shy about spending.

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