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Retailers delivered a late-summer surprise, with sales for the key back-to-school buying month of August coming in better than expected.

All retail categories produced sales that were ahead of muted expectations, including department stores and teen retailers that are among the most vulnerable to spending pullbacks. Sales at stores open more than a year, a key gauge of retail demand, rose 3.3%, when a 2.5% rise was projected by analysts surveyed by Thomson Reuters. The showing follows a 2.9% drop a year ago and a 2.7% rise in July.

While sales are stronger, they remain below pre-recession levels.

"We continue to see weak to modest growth, and it's hard to be optimistic," said Mike Berry, director of industry research for the SpendingPulse unit of MasterCard Inc. (MA). "We're still running at levels well below two years ago pretty much across the board."

Two-thirds of the 30 retailers that report same-store sales beat expectations, with mass merchants and apparel retailers doing so by the widest margins.

"No matter how the economy is doing, back-to-school [shopping] occurs each year and parents are budgeted for it," said Jahronne Martis, retail analyst at Thomson Reuters. "The last week of August was particularly strong."

The showing makes for a solid start to retailers' third quarter, which for most begins in August. But retailers were very promotional during the month, which could eat into their margins and bottom lines.

Also, while the monthly figures are on a par with those posted in the beginning of the year when people were starting to feel good about the economy, retailers face more of an uphill climb in September. They will be facing comparisons against positive same-store sales results for the first time in a year.

Among department stores, Kohl's Corp. (KSS), J.C. Penney Co. (JCP) and Macy's Inc. (M) all beat expectations, and the latter two said back-to-school sales were going well. Macy's did sound a note of caution, with Chief Executive Terry Lundgren saying the company "continues to watch economic trends carefully."

Two major upscale department stores took divergent tacks last month, as a rocky stock market created jitters among the affluent. Nordstrom Inc. (JWN) posted a 6.3% rise in comparable-store sales, ahead of projections for 5.9%. Saks Inc. (SKS) reported a 1% rise when 4.3% was expected.

The big teen retailers fought a heavy battle of promotions during the month, and Abercrombie & Fitch Co. (ANF) appears to have been one of the victors. The company's same-store sales rose 6%, when a 5.9% advance was expected by analysts. The showing compares with a 29% drop last year, when Abercrombie was holding on to its "no discounts" strategy.

Aeropostale Inc.'s (ARO) same-store-sales fell 1% for the month, compared with expectations for a 1.2% rise and a 9% gain a year ago. The company said it "experienced stronger results in its peak back-to-school regions, reflecting a customer that is shopping closer to need."

American Eagle Outfitters Inc. (AEO) reported a 1% comparable-store sales gain when analysts' projected a 1.1% rise, and backed its earnings view for the current quarter.

Mass merchant Target (TGT), however, missed August same-store sales expectations, posting a 1.8% gain, when analysts were expecting 2%. The mass merchandiser was nonetheless upbeat, saying customer traffic was healthy throughout the month and that the August showing was in line with its own expectations. Target had "the double whammy" of very warm weather during the month and a limited amount of summer wear still in stock, said J.P. Morgan retail analyst Charles Grom.

Costco Wholesale Corp. (COST) posted a 5% rise in same-store sales when a 3.6% gain was expected. The warehouse club did even better when factoring in higher prices at its gas pumps and gains from stronger foreign currencies. On that basis, same-store sales rose 7% when analysts were looking for 4.2%. The retailer's international operations were up 11%, compared with a 6% rise in the U.S.

Feelings of some despair helped retailers pull off a better-than-projected showing, analysts said. "Things have been so poor in terms of the economy and even the stock market, and that really pulled expectations down," said Stephen Hoch, marketing professor at the University of Pennsylvania's Wharton School. "Also, last year was a very bad year, so that makes the numbers look that much better."

In essence, "We're treading water on the retail front, and it was thought that we couldn't even do that," Hoch said.

A number of factors led to muted expectations for August. Shoppers received a spate of poor economic news during the month, weathered extremely hot temperatures that took their minds off of the autumn school start, and knew they had an extra week to wait for sales because Labor Day falls later in September this year.

Retail stocks are rising on the reports, with the Standard & Poor's Retail Index recently up 1.7% to 415.55.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

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