By and  on February 24, 2009

Retail shares on Monday got wrapped up in the anchor chain of the Dow Jones Industrial Average, which sank to its lowest level in 12 years.

As fears of the unknown on the financial landscape continued to apply pressure on equity markets, the S&P Retail Index declined another 3.4 percent, or 8.44 points, to 241.20, while the Dow Jones index lost 250.89 points, or 3.4 percent, to close at 7,114.78.

While the S&P index’s closing number is still comfortably above the 207.49 low of Nov. 21, the comfort zone is a brittle one as retail stocks tend to be early indicators of economic downturns.

Also, the retail index was reset in June 2002, making longer-term comparisons impossible.

However, the lowest daily close before last fall’s massive retail contraction was on Feb. 13, 2003, when the revised index briefly hit 243.82 before closing at 246.70.

Essentially, that means retail stocks are sitting at roughly the same level they were six years ago. Not so for the Dow and the other major indices, which continue to dig into the scrapbook of the Nineties for historical comparisons. The S&P 500 Monday fell 26.72 points, or 3.5 percent, to end the day at 743.33, and the Nasdaq Composite dropped 53.51 points, or 3.7 percent, to finish at 1,387.72.

Shares of Macy’s Inc. fell 5.9 percent, or 46 cents, to $7.40, while rival J.C. Penney Co. Inc.’s stock slid 4.2 percent, down 63 cents, or $14.47. At the end of trading on Monday, Saks Inc.’s stock closed at $1.66, down 2.4 percent, or 4 cents. Shares of Wal-Mart Stores Inc. declined $1.14, or 2.3 percent, to $48.88, while Target Corp.’s stock fell 4.4 percent, or $1.32, to $28.43.

While the overwhelming majority of retailers saw their market capitalizations decline on Monday, Limited Brands Inc. ran against the tide, rising 31 cents, or 4 percent, to $8.15 after Citigroup retail analyst Kimberly Greenberger upgraded the retailer’s shares to “buy” from “hold.” Her recommendation was based principally on Limited’s ability to withstand the current economic headwinds, despite the fact the company is likely to be in violation of its adjusted debt to EBITDAR (earnings before interest, taxes, depreciation, amortization and restructuring) covenant.

“We believe management is being proactive and is already in negotiations with its lender (J.P. Morgan Chase & Co., as administrative agent) for covenant relief,” Greenberger wrote in a note to clients. “We believe management will provide an update on its strategy to avoid violating its debt covenants when it reports (fourth-quarter) earnings on Feb. 26, and this could be a positive catalyst for the stock.”

She added that Victoria’s Secret, which accounted for 55 percent of 2007 sales and 78 percent of profits, “will likely come out of this recession in a stronger competitive position given that it is one of the strongest and most widely recognized brands in retail.”

Stocks began the day on a positive note as optimism about the ability of U.S. banks to resist nationalization lifted investors’ spirits, but the glee was short-lived and values began to falter before morning trading had concluded. Nordstrom Inc. reported that fourth-quarter earnings dropped 67.9 percent after the market closed, but its shares had already finished the day off 56 cents, or 4.7 percent, at $11.33.

Also after the close of the market, Aéropostale Inc. said it plans to shutter all 11 of its Jimmy’Z concept stores in the second quarter, allowing it to focus on growing the company’s namesake brand and rolling out a new concept aimed at younger shoppers. The New York-based teen retailer expects to incur about $5 million in pretax charges in the first half of fiscal 2009 related to closing the California lifestyle concept Jimmy’Z. Going forward, Aéropostale expects the elimination to wipe away annual pretax operating losses of about $8 million.

The company declined to comment on the number of job losses the closing might entail. Aéropostale introduced Jimmy’Z in 2005. At the time, it said it hoped to eventually operate about 800 locations. The retailer’s shares closed at $21.66, down 44 cents, or 2 percent.

Eddie Bauer Holdings Inc.’s shares fell 4 cents, or 4.8 percent, to 79 cents after Standard & Poor’s Ratings Services lowered the company’s corporate credit rating to “CCC” from “B-minus,” with a negative outlook based on its concern the company would breach financial covenants of its term loan during the current quarter because of a tightening of terms “and our expectations that profitability will decline at least through the first half of 2009,” according to S&P credit analyst Diane Shand. The company has hired an adviser to explore modification of its debt terms.

The selling currents on Wall Street were so strong on Monday that Liz Claiborne Inc., which began the day up on word that it had reached a corporate sourcing agreement with Li & Fung Ltd., finished the session at $2.31, down 2 cents, or 0.9 percent, after trading as high as $2.60. Coming back from a 52-week low of 24 cents, Joe’s Jeans Inc. posted the biggest percentage increase of the stocks tracked by WWD, rising 3 cents, or 12 percent, to 28 cents.

Frederick’s of Hollywood Group Inc. continued its recent surge following a management reorganization with a 4 cent, or 11.4 percent, increase to 39 cents. The Talbots Inc. also made the list of strongest performers as it advanced 14 cents, or 6.3 percent, to $2.37, managing to stay above the $2 mark for four consecutive sessions.

Real estate developers bore a good deal of Monday’s pain as liquidity questions swirled around them. Developers Diversified Realty Corp. sold a large equity stake to the Otto family, which also agreed to lend Developers Diversified an addition $60 million, after its shares closed at $2.50, down 13 cents or 4.9 percent. General Growth Properties Inc. saw its shares contract 10 cents, or 21.7 percent, to 36 cents, while Weingarten Realty Investors Inc. dropped 17.4 percent to $10.54 after it reported its fourth-quarter funds from operations declined 82 percent.

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