By  on August 6, 2007

Retail stocks closed down significantly Friday once again following overall market losses — marking another rocky week on Wall Street as new subprime mortgage concerns disrupted already volatile markets.

Friday, Standard & Poor's revised its outlook on Bear Stearns Cos. Inc. to negative from stable. The credit rating change follows weeks of scrutiny after the investment firm announced the impending failure of an internal hedge fund that speculates on mortgage-backed securities, which underscored rising credit-market fears across the markets.

"The negative outlook reflects our concerns about recent developments and their potential to hurt Bear Stearns' performance for an extended period. We believe Bear Stearns' reputation has suffered from the widely publicized problems of its managed hedge funds, leaving the company a potential target of litigation from investors who have suffered substantial losses," said S&P credit analyst Diane Hinton.

The Dow Jones Industrial Average lost 2.1 percent to 13,181.91; the S&P 500 fell 2.7 percent to 1433.06; the New York Stock Exchange declined 2.6 percent to 9370.27, and the Nasdaq dropped 2.5 percent to 2511.25.

The S&P Retail Index fell sharply, down 4 percent to 468.47.

Dillard's Inc. shares closed down 9.3 percent to $25.62, a new 52-week low, after Barington Capital Group LP said it sent a second letter to William T. Dillard 2nd, chief executive of Dillard's, repeating Barington's request to meet with management to discuss maximizing shareholder value.

In a press release, Barington said Dillard did not consent to Barington's initial request to meet. On June 29, Barington, representing an investment group that owns over 3.7 percent of Dillard's outstanding stock, said it sent the letter to the Dillard's chief after being unable to reach the executive by phone.

Dillard's will post second-quarter earnings this week, along with other department stores and big-box retailers, including J.C. Penney, Nordstrom, Kohl's, Federated, Saks Inc., Target Corp. and Wal-Mart Stores Inc.UBS analyst Jeffrey Edelman expects Kohl's second-quarter earnings to beat Wall Street expectations.

"We believe Kohl's conservative approach to forecasts, it's relatively immature store base, and continuing new product launches should provide some buffer, even in a tougher spending environment," Edelman said.

Goldman Sachs analyst Adrianne Shapira upgraded Nordstrom shares to "buy" from "neutral" and added the department store chain to the Goldman's conviction "buy list."

"We see Nordstrom as the cheapest way to play luxury retail," Shapira said in a research note. The analyst noted that same-store sales that continue to meet or beat expectations continue to drive earnings visibility in the back half of 2007 — where she expects investors confidence to be restored after a stock sell-off of 26 percent since mid-February.

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