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Sector Snap: Citi analyst warns on back-to-school

NEW YORK (AP) -- An uncertain economy and new financial pressures are expected to temper retail sales for the back-to-school season for many major retailers, a Citi analyst said Wednesday.

"The consumer hourglass is being stretched with Middle America under significant pressure, due primarily to the payroll tax hike," Citi analyst Deborah Weinswig wrote in a research note.

Weinswig is referring to the payroll tax of 2 percentage points, which took effect Jan. 1. That means that take-home pay for a household earning $50,000 a year has been sliced by $1,000.

Weinswig says that her cautious stance for the back-to-school period, which is the second most important selling period behind the winter holidays, is being fueled by a variety of factors. She believes there are no big fashion trends to get shoppers excited about buying, and she's seeing an abundance of early and aggressive promotions, or sales.

She is also seeing greater home-related spending as teens spice up their dorm rooms. That could siphon away from clothing purchases.

Concerns about the back-to-school season, a period that started late last month, were raised on Monday when teen retailer American Eagle Outfitters Inc. cut its second-quarter outlook because of weak traffic and sluggish sales performance of its women's merchandise. The teen retailer cited a highly promotional environment that only increased in July.

Not everyone will suffer. Weinswig suggested that Wal-Mart Stores Inc., the world's largest retailer, will be among the winners for the back-to-school season. She said the discounter's one-stop shopping formula, as well as its focus on tailoring stores to regional markets, will help attract shoppers.

For example, stores in the Syracuse, N.Y., area are highlighting the color orange, which is not a hot color in most other locations but is associated with Syracuse University. The Kearny, N.J., store that Weinswig visited featured a larger assortment of Goya products, reflecting the local Hispanic community. She also believes that Wal-Mart has a more focused assortment than last year.

Analysts will get a better insight into how the start of back-to-school season fared when several retailers like L Brands Inc., and Gap Inc., the operator of its namesake chain, Old Navy and Banana Republic, report monthly sales figures. The figures are based on revenue at stores opened at least a year and are considered a key indicator of a retailer's health.

The list of merchants who are reporting on a monthly basis has shrunk to about a dozen and doesn't include such major merchants as Wal-Mart, Target, and Macy's. But the report should offer color on the mindset of the consumer.

Shares of major retailers were mostly down Wednesday, along with the broader markets.

Here's a look at how some major retailers fared in afternoon trading:

— American Eagle Outfitters Inc.'s shares fell 62 cents, or 3.5 percent, to $16.95.

— Macy's Inc.'s shares slipped 47 cents to reach $47.97.

— Target Corp.'s shares fell 6 cents to $71.73.

— Wal-Mart Stores Inc.'s shares gained 9 cents to $77.49.

— J.C. Penney Co. fell 51 cents, or 3.8 percent, to reach $12.77.

— Kohl's Corp.'s shares fell more than 1 percent, or 64 cents, to $51.05.