By  on December 21, 2005

NEW YORK — Publicly traded retail specialty chains in the New York City area will feel a sting from the transit strike, but department store players such as Macy's and Saks will likely suffer more, Wall Street analysts said.

In a worst-case scenario — a prolonged strike of two weeks or more — analysts said retailers with the greatest exposure such as Saks Fifth Avenue, Urban Outfitters and Gap, might see December same-store sales drop by as much as 1 percent with little or no impact on the bottom line.

Their thinking is that in the holiday shopping season home stretch, consumers and tourists who shop the city's specialty stores will find a way to get the goods they need — with or without subway or bus service. Their alternate destination? The local mall, of course.

Mark A. Friedman, retail analyst at Merrill Lynch, said in a note to investors that the strike "could make final holiday shopping a little more challenging for some."

Friedman covers the specialty retail segment, and calculated that about 2.4 percent of the U.S. population use New York City transit "on a typical weekday." But these 7 million riders do not include "some tourists and New York regional visitors who do not use mass transit, but may alter their plans to shop in the city during a strike."

"Nevertheless, we believe the impact will be minimal on the publicly traded specialty retailers as many of these consumers will be able to shop locally at the national chains," Friedman said.

Investors, meanwhile, were more concerned about broader economic indicators. Major indices fell Tuesday as investors worried that the Federal Reserve would boost interest rates to tame robust growth in the housing sector. The S&P 500 was down 0.02 percent to close at 1,259.62. But core inflation numbers released Tuesday showed that soaring energy prices have not had any significant impact on the cost of goods.

The S&P Retail Index was up 0.17 percent to close at 460.75. Federated Department Stores finished up 0.69 percent to $65.23 while Saks Inc. was 0.37 percent higher to close at $16.27. Gap Inc. ended down 1.72 percent to $17.69 while Urban Outfitters rose 0.08 percent to $26.56 and Abercrombie & Fitch was up 0.73 percent to $63.47.Kimberly Greenberger, retail analyst at Citigroup downplayed the potential strike impact on retail sales, pointing out that the number of specialty stores in New York City represent a small percentage of the total number of stores in a chain.

"If the transit strike lasted for a full week and resulted in a 25 percent decline in sales at the stores impacted, Urban Outfitters [the most-impacted retailer] would see an estimated decline in December comps of only around 1 percent. All other retailers in our universe would see less than a 1 percent December comp impact. Thus, we do not believe the strike will meaningfully diminish holiday sales."

Greenberger said Urban Outfitters has nine stores in the city, or 5.2 percent of its 173 store total, giving the company the highest exposure among specialty retailers. Ann Taylor had the second-highest exposure, with 28 of its 833 stores in New York City. Gap has 50 stores in the city, representing only 1.6 percent of their 3,117 store total. Retailers such as American Eagle, Aeropostale, Abercrombie & Fitch and Talbots had fewer than 5 stores in the New York area.

Stacy W. Pak, retail analyst at Prudential Equity Group, had a less optimistic take on the impact of the strike. "Our sense is that the holiday selling season has not been particularly good so far, that this past weekend's sales were less than spectacular, and a New York City transit strike was basically the last thing the retail sector needed. Our sense is apparel was already losing out somewhat to hotter gifts like electronics, and we think the season is shaping up to be one of the most promotional holiday selling seasons we've ever had."

Pak noted that Gap, Ann Taylor, Aéropostale, TJX and Urban Outfitters were among the specialty stores with the highest exposures.

While Abercrombie & Fitch has only 38 stores in New York state, the company recently opened a 27,000-square-foot flagship on Fifth Avenue. However, Pak said Abercrombie's products have been selling without heavy promotional activity throughout the holiday season, a sign that the strike will have little effect on the retailer.

Pak predicted that the strike would have minimal impact on sales at the Gap, but for a different reason."While [Gap] has high exposure to New York, our sense is investors had very little expectations about a good holiday season for the company [i.e. everything is already "bad"], thus we do not anticipate a big negative impact to the shares."

Department stores appear to be the most at risk. Goldman Sachs analyst Adrianne Shapira said, "clearly, the transit strike should have ramifications for retailers in New York City. Channel checks suggest that last Friday sales were weak as consumers made plans to avoid the potential strike."

Shapira said retailers with "significant NYC flagship exposure include" Saks Inc.'s Fifth Avenue store, which "accounts for 20 percent of SFAE's sales." Also at risk is Tiffany's Fifth Avenue store, which garners 10 percent of the company's sales, and Federated, which has four flagships here that take in 6 percent of sales.

"However, strong tourism trends could help mitigate lighter local traffic and neighboring suburban locations could pick up the shortfall," Shapira added.

Friedman agreed. He said in his research note that "those commuters who couldn't make it in to work (or elected to telecommute) and live in the suburbs will be able to shop locally for their final holiday gifts."

"Furthermore, the absence of a commute home in the evening could provide some extra time to shop the stores," the analyst predicted. "This is also true of commuters in the other boroughs where people can either drive or walk to main shopping districts."

With contributions from Vicki M. Young and Ross Tucker

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