Retail Sales Muffled in July

Air conditioners were in but corduroy was out, as torrid weather across much of the country squelched sales of early-fall merchandise and the back-to-school shopping season got off to a disappointing start, leading retailers reported Thursday.

July’s soaring auto sales -- prompted by employee discount promotions -- also probably contributed to the slower-thanexpected results tallied by the International Council of Shopping Centers, said Michael P. Niemira, the group’s chief economist.

“The flip side of that story is that it’s hurting the nonautomotive demand to some degree,” he said.

Retail sales at stores open at least a year rose 3.6% to $49.8 billion in July, according to the tally of 71 chain stores nationwide. Niemira had expected sales to rise 4% from a year earlier, an estimate he had lowered from an earlier projection of 5%. He predicts that sales will rise about 4% this month.

Same-store sales, which cover locations open a year or more, are considered a key measure of a retailer’s health.

The results, though respectable, were disappointing after June’s strong 5.2% gain.

The brisk June sales probably pinched July’s performance as retailers generally didn’t have as much merchandise as usual to haul out for last month’s clearance sales, Niemira said.

As in previous months, some California companies offered the brightest -- and most disappointing -- results.

Wet Seal Inc., the trendy teen-clothing retailer based in Foothill Ranch, said July sales rose 50.9%, or 15 percentage points more than expected, putting it ahead of all other retailers tallied by Thomson Financial for the fifth month in a row, analyst Gint Rimas said.

“It’s getting to be a streak now,” he said, while cautioning that the company’s results were being compared with weak numbers last year.

Bebe Stores Inc. of Brisbane in the Bay Area, which sells flirty clothes to young women, also stayed well ahead of the retailing pack, advancing a better-than-expected 25% year over year.

Conversely, Gap Inc.’s 4% drop was particularly disappointing, given that the San Francisco-based parent of 3,000 Gap, Old Navy and Banana Republic stores has failed to notch a monthly same-store sales gain since October.

“Gap was a really big miss, and that’s notable because they’re the largest apparel retailer,” Rimas said. Gap said sales were strongest in the second week and weakest in the last.

The scorching temperatures helped crimp sales of fall fashions last month, one of the 10 hottest Julys in the last 111 years, according to SDI/Weather Trends Inc. The forecaster said a recent poll showed that 74% of responding households thought that retailers’ “selling season” was out of sync with shoppers’ “buying season.” Sweaters were plentiful, they said, while bathing suits were scarce.

Near-record fuel prices nationwide aren’t helping retailers either, although Niemira said it remained “a background issue.” The average price of self-serve regular gasoline in California in the latest week was $2.549 a gallon, within a nickel of the record $2.592 set in April, the Energy Department said Monday.

“It’s something you worry about,” Niemira said, “but not something that has caused consumers to materially scale back on their expenditures.”

Well-heeled consumers may have cut back on camisoles and bought more Chryslers in July, but rising pump prices will probably have a bigger effect on lower-income households.

Wal-Mart Stores Inc., which attracts many of those customers, saw July same-store sales rise 4.4% from a year earlier, in line with Wall Street’s expectations. The company, the world’s largest retailer, predicts a sales increase of 3% to 5% for this month.

Wholesale clubs, such as Costco Wholesale Corp. and BJ’s Wholesale Club Inc., were the strongest performers last month, collectively advancing 5%.

Although the overall economy is “coping pretty well” with lofty gasoline and crude oil prices, high energy costs are expected to trim three-quarters of a percentage point from this year’s total U.S. economic growth, Federal Reserve Chairman Alan Greenspan wrote in a letter last month to the Joint Economic Committee of Congress.

“A bigger part of the consumer’s budget is being taken up by gasoline, which means they have less to spend elsewhere,” said Barry Pulliam, senior economist at Econ One Research Inc. in Los Angeles.

July is typically the third-least-significant month of the year for retailers, Niemira said. But some analysts say it has become more important this year as some stores have stocked fall merchandise slightly earlier than in the past.

The back-to-school selling season is the second-mostimportant period for retailers, after the winter holidays. Sales typically peak in August and then catch a second wave in September after students have returned to classes and realized what they should have bought.

If hot weather makes it tough to sell sweaters and corduroy pants, retailers may be in for a disappointing August as well. Average temperatures are expected to be at least 3.1 degrees higher than those a year earlier, Bill Kirk of SDI/Weather Trends reported Thursday. That would make this month one of the 20 hottest in the last 111 years. Last August was the seventh coldest.

The Morgan Stanley index of 38 retail stocks closed Thursday at 162.11, down 3.86, or 2.3%.

Times staff writer James F. Peltz contributed to this report.

*

(BEGIN TEXT OF INFOBOX)

Modest gains

Year-over-year percentage change in July sales at stores open at least one year

*--* Company % change Wet Seal +50.9% Bebe +25.0 Ross +7.0 Guess +5.6 Target +5.5 Wal-Mart +4.4 Pacific Sunwear +4.0 Nordstrom +3.6 J.C. Penney +1.6 Limited Brands +1.0 Federated -0.9 Sharper Image -2.0 May -3.3 Gap -4.0 Hot Topic -5.0

*--*

Sources: Times wire services, company reports