Strong unemployment numbers and takeover talk pushed retail stocks higher Friday as the July 4 holiday week came to a close.
The S&P Retail Index closed up 1.8 percent, at 528.35 Friday, after the U.S. Department of Labor reported the June unemployment rate remained unchanged from May at 4.5 percent. The U.S. added 132,000 nonfarm payroll jobs in June. (See story on page 20.)
Bear Stearns analyst Christine Augustine said the jobs report was in line with economists' expectations. "The job picture is reasonably healthy, so that has been continuing to support consumer spending in light of other headwinds," said Augustine, pointing to gas and housing prices.
Speculation swelled around a Sears Holdings Corp. buyout of Macy's Inc. and an investor activist forcing Target Corp. to sell its credit card business. (See story on page 2.)
At the same time, investors are looking to Thursday when retailers will report June same-store sales, which Wall Street expects to be little more than "decent."
"I don't think anyone expects June numbers to be great, so maybe some of that disappointment has already worked its way into the stocks," said Roth Capital Partners analyst Liz Pierce. "However, given the jobs report, maybe the theory is that the consumer isn't as broken as everyone has thought and that as the back-to-school season approaches, they will step back up."
Telsey Advisory Group's Dana Telsey said June was the second-quarter's most important month — when retailers pull in roughly 40 percent of quarterly sales. "Our channel checks revealed decent traffic patterns throughout the month, as warm weather coupled with discounts lured shoppers in for summer savings," Telsey wrote in a note. Telsey expects American Eagle Outfitters Inc., Kohl's Corp. and Saks Inc. to beat expectations, but thinks Abercrombie & Fitch Co., Hot Topic Inc. and Macy's Inc. will miss their marks.
Nollenberger Capital analyst Angelique Dab does not see strong comparisons for June due to summer's slow, promotional environment on a year-over-year basis. "I expect more of the same — better brands, better department stores and better operators to outperform," Dab said.
Shares of big-box darling Target shrugged off a downgrade from Goldman Sachs analyst Adrianne Shapira, who cut her rating to "neutral" from "buy" based on valuation. Shares of Target closed Friday up 6.1 percent, at $68.10. Shapira sees tougher near-term, top-line trends; planned, rising expenses, and slower earnings growth in the company's second fiscal half.Shares of Caché Inc. finished the week stronger, up 4.9 percent, to $15.10, despite lackluster street comment after the specialty retailer said it acquired privately held design and manufacturing company Adrienne Victoria Designs Inc. for $16 million.
First Albany Capital analyst Paula Kalandiak maintained her neutral rating of Caché shares despite expectations of seeing a more focused "point of view" from the dress retailer. Kalandiak estimated Adrienne merchandise would make up 75 percent of Caché's mix by October — but saw ongoing "merchandise assortment" issues hampering Caché's performance.
J.P. Morgan Chase & Co. started coverage of Caché at "neutral," pointing to recent fashion misses, increased expenses and overall malaise in the women's retail segment.
Also last week, CIBC World Markets analyst Dorothy Lakner reiterated her "sector outperformer" rating of Nordstrom Inc. shares, which fell after speculation the upscale department store would sell its Façonnable brand. The company's shares closed flat Friday, ending at $49.58.
"A sale would take away a small distraction and put capital to better use elsewhere, allowing [Nordstrom] to focus on its strategies to increase designer brands in its assortments and the ongoing recovery in its women's apparel business," said Lakner, who sees Nordstrom shares as "particularly attractive to us with the recent pullback."
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