U.S. retailers reported their 11th straight month of sales declines in July, as shoppers continued to search for bargains and basics in the downturn.

Still, chains including Macy's Inc and Gap Inc gave upbeat profit forecasts even though sales fell, as they discounted less merchandise and cut costs, and margins improved.

Rising unemployment, cool weather and a lack of tax-free holidays like those held last year kept shoppers at home or buying just what they needed last month, rather than stocking up heavily on back-to-school items.

Sales at stores open for at least one year, a measure known as same-store sales, fell 5.1 percent from the year-earlier period, outpacing June's 4.9 percent decline, according to Thomson Reuters data.

Analysts on average were expecting a 5 percent decline, according to Thomson Reuters.

Really, July is going to be very weak, either the worst month in 2009 or the second weakest. It looks pretty bad, said Jharonne Martis, senior research analyst at Thomson Reuters.

Sales may also have been drained from some consumers buying new cars under the cash for clunkers program, siphoning money away from other spending, said Ken Perkins of Retail Metrics.

All eyes are on the fall, with the later Labor Day holiday and tax-free periods in some states spelling delayed back-to-school shopping for many. Last September also was the first month when the streak of negative same-store sales began, so comparisons will start to ease for retailers who have struggled to get shoppers into stores.

The International Council of Shopping Centers expects same-store sales to fall 4 percent in August after dropping 5 percent in July, based on its tally of 33 retailers.

Michael Niemira, the ICSC's chief economist, said the July results gave him optimism that retail sales have turned a corner after coming through a very weak period.

TEEN SECTOR SHOWS WEAKNESS

The biggest decline came from teen apparel retailer Abercrombie & Fitch Co , whose July same-store sales fell 28 percent. Still, that was only slightly worse than the 26.9 percent decline analysts had expected, helping to send Abercrombie shares up 4.6 percent.

American Eagle Outfitters Inc and Aeropostale Inc missed sales expectations, but both teen retailers raised their second-quarter forecasts.

Skate- and snow-boarding inspired retailer Zumiez Inc posted a narrower-than-expected drop in sales. [ID:nBNG320842] Caris raised its rating on Zumiez to average from below average and its shares soared 19 percent.

Buckle Inc , one of few chains that has continued to post gains in same-store sales amid the downturn, saw sales rise less than expected and its shares plunged 13 percent.

Children's Place , which caters to the younger set, topped sales expectations with a 4 percent decline and forecast a slighter narrower quarterly loss than Wall Street expected.

RAISING EXPECTATIONS

Monthly retail sales reports have been less of a barometer of the overall economy since Wal-Mart Stores Inc , the No. 1 retailer, stopped disclosing its data earlier this year.

Wal-Mart is really, truly the one retailer that is stealing most of the market share from the other discounters and the other retailers, said Martis.

Dollar Tree Inc said traffic in its stores continues to rise as shoppers look for cheap prices on health and beauty products, cleaning supplies and food. Its sales rose more than expected. But sales at Big Lots Inc , which also caters to bargain hunters, fell more than analysts forecast, as higher-ticket items like furniture were weak.

TJX Cos Inc , which has attracted more customers to its off-price T.J. Maxx and Marshalls chains, reported a better-than-expected rise in same-store sales and said earnings should come in near the high end of its forecast.

Gap's same-store sales fell 8 percent, a half point better than expected. Women's apparel sold better than men's at its Gap, Banana Republic and Old Navy chains. Gap said earnings could come in as much as 4 cents ahead of analysts' expectations, driven by improved margins.

Even though J.C. Penney Co Inc's sales fell more than anticipated, it raised its earnings guidance as margins and operating expenses improved.

Limited Brands Inc saw same-store sales fall less than expected and its shares soared 15 percent to their highest level in nearly 10 months. The Bath & Body Works chain did well, aided by its relaunched Signature collection of body products, said Lazard Capital Markets analyst Todd Slater.

Lower gasoline prices may have spurred some consumers to spend, but crimped sales at chains that sell gas, such as Costco Wholesale Corp and BJ's Wholesale Club Inc . Sales fell more than expected at both chains.

The Standard & Poor's Retail Index <.RLX> climbed 1.5 percent, outpacing a 0.3 percent decline in the broader S&P 500 <.SPX>.

(Reporting by Jessica Wohl and Ben Klayman in Chicago, Aarthi Sivaraman in Seattle, Nicole Maestri in San Francisco, Martinne Geller and Chavon Sutton in New York; Editing by Ted Kerr and John Wallace)

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