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WWD Stock Index Dips

<P>NEW YORK — Reeling from a batch of largely weaker-than-expected same-store sales reports and a sluggish monthly government employment report, the <STRONG>WWD Composite Stock Index </STRONG>ended last week down 1.9 percent at 1,163.01 from...

This story first appeared in the December 6, 2004 issue of WWD.  Subscribe Today.

NEW YORK — Reeling from a batch of largely weaker-than-expected same-store sales reports and a sluggish monthly government employment report, the WWD Composite Stock Index ended last week down 1.9 percent at 1,163.01 from 1,185.89 a week earlier.

The broader S&P 500 index, however, was up 0.7 percent at 1,191.17. Standard & Poor’s retail stock index closed the week 1.5 percent lower at 454.6 from 461.46.

Most apparel retailers reported November same-store sales on Thursday and many missed analysts’ estimates as the combination of fewer promotions and higher gas prices appeared to make consumers apathetic, even during the Thanksgiving shopping weekend.

Notably, shares of Ann Taylor Stores dropped 11 percent in the week to $20.45 and are near a 52-week low after the company posted an 8.3 percent decline in November comps. The retailer cited poor customer response to merchandise.

Shares of Ann Taylor were subsequently downgraded to “underweight” from “neutral,” and company earnings estimates were cut at J.P. Morgan Chase & Co.

Shares of Gap Inc., which posted a 4 percent decrease in consolidated November same-store sales, closed the week off 6.8 percent at $21.48 from $23.04 last week.

Following the same-store sales reports, two brokerages downgraded shares of discounter Target Corp., despite its in-line same-store sales showing a 3.2 percent advance. Citigroup Smith Barney cut Target shares to “hold” from “buy” late Thursday based on the belief that few catalysts exist to push the stock above the brokerage’s $55 price target. Analyst Deborah Weinswig said in a report that she prefers shares of Wal-Mart Stores Inc., even though Wal-Mart posted a softer-than-anticipated 0.7 increase in November comps at its U.S. stores.

“The [Target] stock’s current valuation fully reflects the company’s streamlined focus on its core business following the divestiture of Marshall Field’s and Mervyn’s,” wrote Weinswig, who is also worried that Target is up against difficult same-store sales comparisons through May.

Meanwhile, Lazard Freres & Co. analyst Todd Slater dropped his investment rating to “hold” from “buy” and cut profit estimates on Target largely based on valuation, saying that at around $52, the stock is within 3 percent of his $54 target price.

“The current favorable valuation justifiably reflects Target’s faster and more visible organic growth rate since the divestiture of its department store assets, as well as its ability to execute a more upscale and differentiated model relative to Wal-Mart,” Slater wrote in a research report on Friday.

Target shares closed the week down 1 percent at $51.70, while Wal-Mart shares were at $52.93, off 4.3 percent.

Aside from the disappointing sales data, anemic jobs growth in November cast another shadow on retail stock performance, as retailers lost employees during the month, in contrast with what is usually a month filled with holiday-related hiring.

Nonfarm payrolls in November rose by only 112,000, compared with expectations for an increase of 200,000, according to a Labor Department report released Friday. Further, October and September nonfarm payroll numbers were revised down by about 54,000 combined.