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Discounts help U.S. chains lure shoppers in July

(Reuters) – Discounts drew shoppers to malls in July, helping many retailers report healthy sales gains in what is typically a clearance month heading into the back-to-school season.

Most retailers offered discounts in July to clear out leftover summer merchandise and make room for back-to-school items and other fall goods.

“Retailers focused on back to school a little earlier this year and increased their promotions,” said Tom Clarke, director of consulting firm AlixPartners’ global retail practice. “The trend has been: The first one out gets more (market) share.”

Few on Wall Street expect July numbers to dispel concerns about the U.S. economy, which has been cooling after showing some strength early in the year.

The readings on July give investors an early look at U.S. demand during the back-to-school shopping season. While July itself is typically one of the lowest volume months, it kicks off the back-to-school season, the second-biggest selling period of the year after the winter holidays.

Some of the July sales winners were Gap Inc; warehouse club operator Costco Wholesale Corp, which topped same-store sales estimates for the first time since February; teen apparel chain American Eagle Outfitters Inc and Victoria’s Secret parent, Limited Brands Inc.

Chains posting disappointing results for the season included Aeropostale and Abercrombie & Fitch, which typically do not issue monthly sales results.

Overall, same-store sales at U.S. retailers, excluding drugstores, rose 4.6 percent in July, well above the final estimate of 3.1 percent, according to Thomson Reuters I/B/E/S.

Federal Reserve officials recently described the U.S. economy as having “decelerated somewhat.” That marks a change of tone from its previous assessment in June, when it said the economy had been “expanding moderately.”

Some shoppers are closely monitoring the state of the economy.

“I know it’s not doing good,” said Gavynn Arteaga, 15, who lives with his mother in Marana, Arizona. “I have to watch what I spend on. Obviously, money’s not coming as easy as it did.”

Target Chief Executive Gregg Steinhafel called the retail environment “quite challenging.” The discount chain’s same-store sales rose 3.1 percent, while analysts expected a 2.7 percent increase.

TEEN ANGST

Gap shares rose about 9 percent on Thursday after the apparel chain reported a much better-than-expected 10 percent rise in sales at stores open for at least a year, a key industry metric known as same-store sales. Analysts were looking only for a 3.8 percent increase. The retailer also forecast second-quarter earnings above Wall Street expectations.

Limited Brands reported a bigger-than-expected 8 percent rise in July same-store sales and raised its earnings outlook. It now sees a second-quarter profit of 46 cents to 48 cents a share, up from its prior outlook of 40 cents to 45 cents.

While American Eagle has stopped reporting monthly results, it also raised its profit outlook for the second quarter after reporting much stronger-than-expected sales. Its revamped merchandise has struck a chord with its young clientele.

American Eagle “showed the ability to entice customers with new back-to-school merchandise along with significant deals on clearance tables,” Nomura analyst Paul Lejuez said.

American Eagle’s teen rivals disappointed investors.

Abercrombie & Fitch Co, which has faced some criticism from Wall Street for ill-timed international flagship store openings and inventory problems, forecast quarterly earnings at about half what analysts expected after sales in stores open at least a year fell 10 percent.

Aeropostale Inc, meanwhile, announced weaker-than-expected second-quarter sales and a 1 percent decline in July same-store sales. Its shares fell 10 percent.

(Reporting by Dhanya Skariachan and Phil Wahba in New York, Jessica Wohl in Chicago, Lisa Baertlein Los Angeles and Juhi Arora in Bangalore; Editing by Lisa Von Ahn and Kenneth Barry)

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