By Dhanya Skariachan
NEW YORK (Reuters) - U.S. retailers relied heavily on promotions to win over cautious consumers in June, and the trend may weigh on margins as they head into the key back-to-school shopping season.
Sales at stores open at least a year rose 3.1 percent, just shy of the 3.2 percent increase that Wall Street predicted, according to reports from 28 retailers tracked by Thomson Reuters. The Standard & Poor's Retail Index fell 0.5 percent, trailing the broader market.
"What it really says is we're just treading water," said Stephen Hoch, marketing professor at the University of Pennsylvania's Wharton School. "There's no evidence that somehow the consumer is going to step up to the plate and spend us out of the economic doldrums."
Teen apparel retailers like Abercrombie & Fitch and Hot Topic were among the best performers, along with department store chains from Macy's Inc to JC Penney Co.
These companies had benefited from warmer weather and promotions for Memorial Day. Penney cited brisk sales of men's summer apparel ahead of Father's Day as well.
Shares of Abercrombie surged 9 percent, while Penney gained 6.5 percent.
Apparel retailer Gap Inc and discount chains posted some of the weakest results. Gap shares tumbled 7 percent, while Target Corp fell 1.5 percent.
BACK-TO-SCHOOL IN VIEW
June marks the 10th consecutive month of rising sales after a year of declines during the recession, but analysts have urged investors not to interpret the strength as a harbinger of better times while unemployment remains high and consumers stay cautious.
New data on Thursday showed a drop in U.S. unemployment claims, but that was not enough to boost retail shares.
The International Council of Shopping Centers said June sales came in at the low end of its outlook and forecast a same-store sales increase of 3 percent to 4 percent in July.
"Lower- and middle-income consumers have really taken a pause here," Retail Metrics President Ken Perkins said, adding that the jobless rate, stagnant home prices and declining stock markets still weigh on shoppers' minds.
Despite their desire to break consumers' reliance on deep discounts since the recession, many retailers offered major promotions to clear store shelves for back-to-school merchandise.
"Coming off the recession that we've had, retailers are going to be a lot more skittish about holding inventory," said analyst Bryan Keane of Alpine Funds in Purchase, New York. "They're not going to wait, so you do get the promotions." Keane's firm currently owns Abercrombie & Fitch shares.
Perkins said retailers were pushed to cut prices more than they had planned, with promotions getting heavier toward the end of the month.
"In terms of back-to-school, it suggests it's going to be a difficult one for retailers," Perkins said. "They are going to have to be a bit more promotional than they want to be."
Limited Brands, which operates retail chains Bath and Body Works and Victoria's Secret, said June same-store sales rose 6 percent, well ahead of the 3.2 percent gain analysts had forecast. It forecast July same-store sales to be up in the mid-single digit percentages.
Top U.S. warehouse club operator Costco reported a 4 percent rise in June same-store sales, but fell slightly short of analyst forecasts as its stores were closed on Memorial Day.
Gap reported flat same-store sales in June amid disappointing traffic, missing the 3.4 percent increase expected by analysts and setting the company up for margin pressure in July as it tries to clear inventory for the fall.
(Reporting by Dhanya Skariachan; Additional reporting by Brad Dorfman, Ben Klayman, Helen Chernikoff, Shradhha Sharma, Viraj Nair, Emily Stephenson; Editing by Michele Gershberg, Derek Caney and Lisa Von Ahn)
