As the traditional holiday selling season drew to a close Christmas Eve, investors — who had a half day of trading — were encouraged by news that Merrill Lynch was getting a cash infusion from two investment groups worth more than billion. Retail stocks also got a much-needed boost from prospects of a better-than-expected holiday shopping season.
Meanwhile, an apparel- and footwear-sector outlook report from Citigroup painted a dim picture for these stocks heading into the new year.
In light trading, the Dow Jones Industrial Average gained 0.7 percent to close at 13,549.33, while the broader S&P 500 climbed 0.8 percent to 1,496.45. The S&P Retail Index outpaced both these major indices with a 1.6 percent gain to end at 419.42. One investment banker cited a positive report on retail Internet sales from ComScore Inc. for part of the optimism in the sector. ComScore said online holiday sales through this past weekend were up 19 percent over last year to billion.
Big gainers Monday that drove the S&P Retail Index were Bon-Ton Stores, with a 7 percent increase to .77, and Dillard’s, with a 4.3 percent gain to .30, as well as JCPenney, with a 4.6 percent increase to .85.
In national print advertising newspaper inserts that appeared Monday, Bon-Ton, JCPenney, Kohl’s and Macy’s all touted clearance sales and 6 a.m. openings yesterday. The retailers advertised promotions of 60 to 70 percent on a variety of seasonal items, men’s and women’s apparel, outerwear and home goods.
Eric Beder, an analyst at equity firm Brean Murray, Carret & Co., said the final weekend before Christmas was strong for specialty apparel retailers. Compared with other channels, retailers in the sector were disciplined with their markdowns and inventory. "With the holiday season all but over, we believe there will be general relief that the consumer came back on the last weekend to shop and take advantage of deep discounts," Beder said in his research note late Monday. "In terms of our universe, we remain impressed with what we have seen in terms of maintaining discounts at levels equal or slightly less than last year. We believe that even with lackluster traffic, our estimates for most of our universe are achievable."
Beder reiterated "buy" ratings on Aeropostale, Bebe Stores, Cache, Guess, True Religion and Wet Seal.
Citigroup analyst Kate McShane said in her outlook report that “caution is the word of the day.” She said the majority of companies in our universe “have issued a cautious outlook on the remainder of 2007 and the first half of 2008, driven by concerns over the housing market, gas prices and weaker U.S. consumer spending. We maintain a conservative view on the apparel and footwear stocks, focusing on names with reduced exposure to a potential economic slowdown next year.”
The analyst cited Nike, VF Corp. and Polo Ralph Lauren as safer picks in 2008. She said business will be particularly challenging for apparel vendors, who “will face many of the same retail challenges in 2008, but on a larger scale. Department stores and other retailers will continue to reassess brand assortments with a focus on private label, push back more aggressively on markdown allowances and manage inventories more conservatively in order to protect their own margins.”
McShane said the traditional moderate brands face the most risk, and she would “remain on the sidelines for Liz Claiborne and Philips-Van Heusen. We would put money to work in VF Corp., based on its limited exposure to department stores, and Polo Ralph Lauren, based on its brand strength, international exposure and luxury business.” |
