by Will Ashworth | August 6, 2012 7:00 am
New York University students return to campus Sept. 4, while New York City schoolchildren go back two days after that. We’re about a month away, and the cash registers at retailers across the country are already starting to ring.
The National Retail Federation (NRF) forecasts the 2012 back-to-school season to bring in $83.8 billion in revenue, 22% higher than the $68.8 billion from last year’s annual ritual. Retailers have to be crossing their fingers that this number is anywhere near accurate. Here are some of the winners from a big jump in spending.
One beneficiary will be retailers with a strong online presence. According to the NRF, 39.6% of school shoppers will buy at least one item online this year. Even more telling — online shoppers will spend $847 per person, or 27% more than the average shopper, for school supplies. Obvious beneficiaries on the school-supplies side of the equation are Staples (NASDAQ:SPLS), Office Depot (NYSE:ODP) and OfficeMax (NYSE:OMX) in that order.
According to Purdue University professor Richard Feinberg, parents want their kids to be prepared for school, and supplies are a big part of that.
In addition to school supplies, parents want their kids to look sharp heading back to school, so there will be pockets of strength in apparel retail in August. Although July is the year’s second-slowest month for retailers, their numbers foretell how much shoppers will drop on back-to-school clothing.
In addition, they often predict which retailers have momentum heading into the second-busiest time of the year on the retail calendar. Thomson Reuters’ survey of 19 major retailers found July sales increased 4.3%, 280 basis points higher than analysts’ expectations. Parents cut spending in 2011, and now it’s time to catch up.
Heading my list of beneficiaries from a solid back-to-school season is Gap (NYSE:GPS), whose turnaround continues to gain momentum. Its July same-store sales were up 10% compared to a consensus estimate of 3.8%. Leading the charge was its legacy business, which saw a 13% increase in its same-store sales year-over-year compared to a drop of 6% last July.
All three of Gap’s brands increased same-store sales in July, and its relatively new Athleta concept continued to make headlines for taking the fight to Lululemon (NASDAQ:LULU). Good things are happening at the Gap, and it’s starting show in the price of its stock, which is higher than it’s been since 2001. CEO Glenn Murphy has successfully righted the ship.
Although American Eagle Outfitters (NYSE:AEO) no longer issues monthly numbers for same-store sales, it has revised its second-quarter earnings per share upward by almost 50% because of stronger-than-expected sales. Same-store sales for Q2 increased 9%, while competitors Abercrombie & Fitch (NYSE:ANF) and Aeropostale (NYSE:ARO) declined by 10% and 1%, respectively. I don’t see this changing much in August and into September. American Eagle is definitely the strongest of the three right now. Abercrombie in particular is going the wrong way.
Girls want to look good heading into the new school year, and Limited Brands (NYSE:LTD) appears ready to take a lion’s share of any back-to-school business. July same-store sales increased by 12%, double what analysts were expecting. Confident in the business, management raised the lower end of its Q2 earnings per share to 46 cents, 15% higher than its previous view. More important, it announced a $1 a share special dividend returning almost $300 million to shareholders. Special dividends are always a good sign.
Although Macy’s (NYSE:M) had a good July, my final beneficiaries from back-to-school are discounters TJX (NYSE:TJX) and Ross Stores (NASDAQ:ROST), which both achieved same-store sales growth of 7% in July, easily beating analyst expectations. Even with the forecasts of higher spending, consumers will still be careful about how they do it. No one benefits more from penny-pinching on clothing than these two. I expect big numbers from both of them in August.
The catch with any boost in back-to-school spending, however, is that it could come at the expense of revenues later in the year, which doesn’t bode well for Christmas, the busiest time of the year.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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