KSS Kohls Corporation

The National Retail Federation expects 2016 to turn out a little better than expected, forecasting U.S. retail sales rising 3.4% thanks to a stronger start to the year and a continuing shift to online sales.

The rate is up slightly from an initial forecast of 3.1% that the trade group issued in February, and puts the pace of growth in line with last year's. The NRF also raised its forecast for online sales to increase between 7% to 10% this year, slightly better than its prior expectation, as the shift to e-commerce accelerates.

The midyear revision follows better than expected sales growth of 4% in the first half of the year, according to the retail industry group, which excludes sales from car dealerships, gasoline stations and restaurants in its calculations.

The brighter forecast comes as many traditional retailers struggled in the first months of the year as unseasonably warm weather sapped demand for winter clothes. Macy's Inc. reported its worst quarterly sales since the recession, while Kohl's Corp. and Nordstrom Inc. both reported sinking sales at existing stores. Wal-Mart has eked out small sales gains, while Target Corp. is projecting its first quarterly sales decline in two years in the coming quarter.

But newcomers like Hennes & Mauritz AB's H&M chain and discounters like TJX Cos. have continued to expand. Dollar stores like Dollar General Corp. have provided another bright spot, growing sales and opening stores as low-income shoppers trade down.

The NRF projects a slower growth rate over the coming months and into the critical holiday season. NRF Chief Economist Jack Kleinhenz said that retailers may maintain some momentum after the first half of the year, but upcoming challenges include lackluster wage growth, ongoing deflation and uncertainty around the coming presidential election.

"I don't foresee the pace of growth in the first half to continue into the second half," Mr. Kleinhenz said in an interview. "It's still very tepid."

Most retailers won't report second quarter results for a few weeks but Amazon.com Inc. is slated to report Thursday while Under Armour Inc. will release its second quarter results Tuesday.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

(END) Dow Jones Newswires

July 26, 2016 06:35 ET (10:35 GMT)

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