By  on October 20, 2008

Federal Reserve Board chairman Ben Bernanke’s support for another fiscal stimulus package buoyed investors Monday, but retail issues lagged the broader market as the plight of everyday shoppers, especially those with already tenuous access to credit, came into sharper relief.

Shares in the Standard & Poor’s Retail Index rose 1.7 percent, or 4.73 points, to 282.60. Although the third straight day of gains, the finish was 39.4 percent below the index’s 52-week high, reached last October.

Overall, investors were heartened by the talk of stimulus for consumers and signs the credit markets were thawing, helping to lift the Dow Jones Industrial Average 4.7 percent, or 413.21 points, to 9,265.43.

Retail shares are considered to be among the first to bounce back after an economic slowdown, but few have dared to even speculate when that rebound might come.

Already chains have sharply lowered their expectations for the rest of this year and are expected to limit whatever damage they can by marking goods down early to avoid costly inventory buildups and by cutting expenses in other ways. The prospects for next year, especially the first half, are similarly dim.

“Incoming data on consumer spending, housing and business investment have all showed significant slowing over the past few months, and some key determinants of spending have worsened: Equity and house prices have fallen, foreign economic growth has slowed, and credit conditions have tightened,” Bernanke told a House committee Monday. “With some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.”

Washington doled out $600 tax rebate checks to consumers earlier this year in an effort to boost the economy.

Whether it is another bit of aid from the government, a super sale or exactly the right look, shoppers are going to need incentives to increase their spending given their worsening economic prospects.

There are signs, too, that consumers are beginning to encounter their own credit crunch, as the financial storm that overtook the banking world and all but halted loans to companies reaches into pocketbooks across the country.

“Consumer spending now seems directly limited by credit rationing activity, as banks appear to be withdrawing credit, beginning with the least creditworthy customers,” said a report titled “Consumer Cash Flow,” released by Citi on Monday.

“Lenders are tightening credit conditions largely because of past lending mistakes, but partly out of credit fears related to the employment outlook for borrowers. Hence, a vicious cycle is unfolding of credit weakening the economy, and the economy weakening credit,” the report said.

Credit card companies have restricted their lending in high-risk areas where house price declines have been steep and economies have weakened, such as California, Florida, Arizona, Michigan, Nevada and Ohio.

“Retailers with greater exposure to these markets are likely to be more affected by tightening credit conditions,” the report said. Fashion retailers with the highest percentage of their stores in those six states include Ross Stores Inc. (45.6 percent), Nordstrom Inc. (44.2 percent), Saks Inc. (43.1 percent), Urban Outfitters Inc. (32.9 percent), Macy’s Inc. (32.5 percent), Hot Topic Inc. (31.5 percent), Chico’s FAS Inc. (29.9 percent), Pacific Sunwear of California Inc. (29.7 percent) and Abercrombie & Fitch Co. (29.2 percent).

Department stores, however, are seen as more vulnerable to credit-driven weakness than their specialty counterparts. “Department store sales could slow if consumers have less credit, as over [roughly] 85 percent of sales are made with a credit card,” the report said.

Despite the gloom over credit and its potential impact on consumer spending, it was a mixed day in the markets for retail shares.

Macy’s enjoyed a 9.2 percent boost to $10.74 for the day, while Nordstrom advanced 5.9 percent to $17.65. Shares in J.C. Penney Co. Inc. rose 3.8 percent to $21.90 and Kohl’s Corp. stock was up 3.4 percent to $31.54. Wal-Mart Stores Inc., a Dow component stock, ended the day up 1.2 percent to $54.43. Dillard’s Inc., however, skidded with a 5.6 percent decline to $6.54, after gaining on Friday.

Specialty store results were mixed. Pacific Sunwear of California enjoyed a 5 percent gain, to $3.80, following an unsolicited bid from the smaller extreme sports retailer Adrenalina, which gained 20.8 percent to $1.45. Mothers Work Inc. and American Apparel Inc. were up 14.6 percent and 8.5 percent, respectively, to $12.89 and $6.52, but The Talbots Inc. lost 6 percent, to $9.01, and Caché Inc. was down 3.4 percent to $3.46.

Apparel vendors were down more than up for the day.

The gainers included Polo Ralph Lauren Corp., up 4.2 percent to $48.77; Nike Inc., 4 percent to $59.75, and G-III Apparel Group Ltd., 2.9 percent to $15.91.

Among the decliners were Warnaco Group Inc., down 6.9 percent to $28.75; Columbia Sportswear Co., 5.3 percent to $32.85; Liz Claiborne Inc., 3.7 percent to $9.99; Kenneth Cole Productions Inc., 3.3 percent to $10.21, and Jones Apparel Group, 1.8 percent to $9.75.

Moody’s Investors Service lowered its debt rating on Jones Apparel Group to “Ba2” from “Ba1” after the firm warned last week that its adjusted 2008 earnings would range from 93 cents to 98 cents a share, down from the $1.20 to $1.35 previously expected. The outlook on the rating is stable, reflecting in part the firm’s increased business with discounters, which the rating agency said would provide a higher degree of earnings stability.

Moody’s also downgraded BCBG Max Azria Group Inc.’s debt to “Caa3” from “Caa2.” The outlook on the rating is negative. “The downgrade reflects the company’s continued free cash flow deficits and very weak operating performance at its subsidiary, Max Rave LLC, making the company heavily reliant on its owner provided line of credit,” the rating agency said in the downgrade. “Moody’s notes, however, that the BCBG core division continues to perform well, but that the losses at Max Rave have reached such a level that it places the whole company at risk for a potential covenant violation and/or default.”

Last week, Moody’s changed its outlook on Macy’s debt to “negative” from “stable,” reflecting a profit warning from the retailer. The ratings service currently ranks Macy’s debt at “Baa3,” a medium-grade rating that sits above “Ba.”

Still, not all signs point to a plummeting economy.

The Conference Board on Monday said its index of leading economic indicators rose 0.3 percent last month, the first increase in the last five months.

The nudge up in September — driven by improvements in real money supply, the index of consumer expectations and other areas — is not a sign the economy will improve in the near term, however, The Conference Board said.

Economic growth, as seen in the gross domestic product during the first half, slowed to an average annual rate of 1.8 percent, down from 2.3 percent in the second half of last year.

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