Retail Shares Soar on Government Moves

Standard & Poor’s Retail Index surges23.59 points on Monday.

Retail shares posted their second-largest jump, rising 10.6 percent Monday and outpacing the market overall, which was buoyed by a bailout plan for Citigroup Inc. and the formal unveiling of President-elect Barack Obama’s economic team.

This story first appeared in the November 25, 2008 issue of WWD.  Subscribe Today.

The Standard & Poor’s Retail Index surged 23.59 points to close at 246.93.

Just last week, the index was testing new bottoms as investors sold off shares tied to consumer spending. On Thursday, the index marked its lowest close since its recalibration in June 2002, and on Friday it established a new record low of 207.49 in intraday trading.

“It’s probably a bear market rally, which are very abrupt and generally short-lived,” Laurence C. Leeds Jr., chairman of Buckingham Capital Management, said.

Even with Monday’s rise, retail shares are still down 37.9 percent over the last three months.

“From all I can gather, business in retail America still seems extraordinarily difficult,” Leeds said. “I don’t meet many retailers who seem very optimistic, and unemployment continues to rise, household income continues to head south.”

Dramatic swings have become relatively common in recent months as markets ride a monetary and emotional roller coaster powered by the global economic slowdown and continued uncertainty over the health of the financial system.

The federal government’s plan to provide Citigroup, a cornerstone of the banking world, with $20 billion in fresh capital and to guarantee $306 billion in questionable assets removed a huge question mark that had been weighing down markets.

Apparel vendors joined in the rise, as well, with Jones Apparel Group Inc. and Liz Claiborne Inc. each making up large chunks of ground lost last week. Shares of Jones rose 30 percent to $3.81, and Claiborne’s stock ascended 29.6 percent to $2.32.

Both stocks had been beat up particularly hard as investors fretted over consumer spending, weak department store sales and financing agreements that expire next year and have yet to be renewed.

Among the other vendors, The Warnaco Group Inc.’s stock jumped 16.8 percent to $15.79, and Polo Ralph Lauren Corp. was up 13.3 percent to $40.83.

The retail rally was second in magnitude only to the index’s Oct. 28 jump of 13.6 percent, a perplexing day when investors plowed into retail despite news that consumer confidence had hit an all-time low.

Among the companies starting the week with strong stock increases were Charming Shoppes Inc., up 39.5 percent to $1.20; Hot Topic Inc., 27.4 percent to $7.48; Nordstrom Inc., 25 percent to $9.76; Abercrombie & Fitch Co., 19.2 percent to $17.45; The Men’s Wearhouse Inc., 17.1 percent to $10.27; J.C. Penney Co. Inc., 16.4 percent to $17.62; Macy’s Inc., 16.2 percent to $6.66, and Coach Inc., 13.2 percent to $16.68.

Dillard’s Inc. stock rose 7.9 percent to $3 after cutting about 500 positions from its staff in a bid to reduce operating expenses.

The stock market rush wasn’t enough, though, to push all retail issues up.

AnnTaylor Stores Corp.’s stock fell 7.7 percent to $4.46. Debt-rating agency Standard & Poor’s reaffirmed the retailer’s credit rating at “BB-minus,” but changed its outlook on the grade to negative from stable.

“The outlook revision is due to [Ann Taylor’s] very weak third-quarter performance, including net sales that declined 12 percent from the third quarter of 2007,” Jackie Oberoi, credit analyst, said.

Standard & Poor’s expects the company’s soft performance to continue through the fourth quarter.

Fashion stocks, however, generally outperformed the Dow Jones Industrial Average, which leapt 4.9 percent, or 396.97 points, to 8,433.39. Obama officially named Timothy Geithner as his pick to head the Treasury Department and Lawrence Summers to lead the White House Economic Council.

Today, investors will get a new reading on consumer confidence, as well as a look at third-quarter results from American Eagle Outfitters Inc., Charming Shoppes Inc., Chico’s FAS Inc., The Talbots Inc. and others.

The market developments came as Obama named five key architects of his economic recovery plan at a news conference in Chicago. On Saturday, the president-elect said he was developing an initiative to save and create 2.5 million jobs in the next two years.

Leading the economic team will be Geithner, president of the New York Federal Reserve, who was nominated as treasury secretary to steer Obama’s initiatives. With the economic team and Obama’s jobs plan expected to focus on consumer spending and middle-class jobs, retailers could get a boost, if not in the first half, then possibly in the second half of next year.

Obama also named Summers, Geithner’s mentor, treasury secretary in the Clinton administration, as director of the National Economic Council. Christina Romer, an economics professor at the University of California, Berkeley, was selected to be director of the Council of Economic Advisers. Melody Barnes, a senior economic policy campaign adviser and former chief counsel to Sen. Edward Kennedy (D., Mass.), will be director of the Domestic Policy Council, and Heather Higginbottom, a policy director for the Obama campaign and former legislative director for Sen. John Kerry (D., Mass.), is the new deputy director of the Domestic Policy Council.

Richard Yamarone, chief economist and director of economic research at Argus Research Corp., said the team and Obama’s emerging economic stimulus plan are positives for retailers.

“What we do know is that a big number is being floated around, and that is a very positive sign that they are not going to do this piecemeal,” he said. “Obviously, we have the greatest credit crisis of our lifetime, so it is good to know that you will have one of the biggest stimulus packages ever to try to rectify the situation.”

He acknowledged that none of the moves being made by the president-elect will help retailers for holiday or the first part of next year.

“The holiday season is pretty much written off.…Retailers are looking forward to getting this economy righted in the first and second quarters, depending on how fast they can implement the ideas,” Yamarone said.

Obama is already working with Democratic leaders in Congress to craft the stimulus plan, which is expected to be far larger than the $175 billion package he proposed on the campaign trail. Obama is urging Democratic leaders, who will enjoy wider majorities in Congress when they reconvene on Jan. 6, to pass a package before his inauguration on Jan. 20.

Some analysts and lawmakers have suggested the package could cost between $500 billion and $700 billion. Obama declined on Monday to put a price tag on the proposal.

The plan will include billions of dollars for public works projects to repair the country’s aging bridges and highways and other infrastructure, tax cuts for low- and middle-income taxpayers and new funds to promote green technology and alternative-energy resources.

The economic appointees “all bring brainpower to the table and a real deep understanding of how the economy works and what we need to do to fix it,” said Gus Faucher, director of Macroeconomics for Moody’s Economy.com.