Retail Buckles Down

Consumer belt-tightening and hotter July weather hurt some retail apparel sales, but discounters made headway with general goods

By Karen Sack

Apparel sales at department stores and speciality shops fell a bit in July, but discount-store sales rose moderately on strength in air conditioners and general goods. July same-store sales dropped 14% at Abercrombie & Fitch and fell 17.4% at Ann Taylor. Discounter Family Dollar saw sales rise 7.7% and Kohl's posted a 14% gain. With specialty apparel still weak, companies are likely to markdown summer merchandise to make way for autumn goods.

Over the next two weeks, retailers will post their second-quarter earnings; better inventory management and cost cuts should help keep net results mostly in line with estimates. S&P sees some easing in the second half, with only moderate sales pickup. Competitive pricing and more attractive fashion in back-to-school items could help youth sales to turn around, while speciality stores like Ann Taylor could benefit from a return to classic clothing.

S&P has a 5 STARS (buy) rating on Children's Place (PLCE ).

S&P also has 4 STARS (accumulate) ratings on Abercrombie & Fitch (ANF ), American Eagle (AEOS ), Ann Taylor (ANN ), BJ's Wholesale Club (BJ ), Family Dollar (FDO ), Target (TGT ) and Wal-Mart (WMT ).

Karen Sack is a retail analyst for Standard & Poor's

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