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Bucking the Bad News: Retail Shares Soar Monday

S&P Retail Index gains despite GM bankruptcy.

Analysts see signs of stabilization at retail.

Even the bankruptcy of the firm that once represented the pinnacle of American capitalism couldn’t hold back retail and fashion stocks on Monday.


A handful of favorable economic reports and high hopes for May same-store sales reports, due on Thursday, pumped enough optimism into markets on the first day of the new month for retail stocks to surge, even as General Motors Corp. entered bankruptcy.

The S&P Retail Index made steady gains throughout the day to close up 19.56 points, or 6.1 percent, to 338.48. The gain was the 11th best since the index was recalibrated seven years ago and the third best of the year, eclipsed only by the 7.7 percent and 6.4 percent advances of March 10 and March 23, respectively, as retail stocks rallied from lows brought on by the onset of the financial crisis last year.

Department stores led the charge. Dillard’s Inc. grew 18.5 percent to $11.20; Macy’s Inc., 15.1 percent to $13.44; J.C. Penney Co. Inc., 14.9 percent to $29.98, and Nordstrom Inc., 14 percent to $22.45.

In the specialty sector, Casual Male Retail Group Inc. increased 20.6 percent to $2.11; Coldwater Creek, 12.9 percent to $4.29; Charlotte Russe Holding Inc., 8.9 percent to $11.05, and Limited Brands Inc., 8.3 percent to $13.55.

It wasn’t only retail shares that jumped during the day. The broader indices made strides as well with the Dow Jones Industrial Average — which benefited from the removal of General Motors and Citigroup Inc. — gained 2.6 percent, or 221.11 points, to 8,721.44. The Standard & Poor’s 500 scored its own 23.73 point, or 2.6 percent gain, closing at 942.87, a 2009 high.

Monday began as expected with General Motors filing for Chapter 11 protection in federal bankruptcy court in Manhattan, as part of the Obama administration’s attempt to trim the size of the ailing automaker and return it to profitability.

Later in the morning, the Commerce Department said construction spending rose 0.8 percent in April, the data point’s largest jump since August.

The Institute for Supply Management also reported that U.S. manufacturing shrunk at a slower rate in May than it did in April. The news followed similar reports from Asia and Europe, which prompted gains in those markets.

Finally, the Conference Board said online advertised job vacancies increased by 250,000 in May, the figure’s first gain since a 21,000 uptick last October. However, such vacancies are still down 25 percent for the year and some observers predict further employment declines when May figures are released later this month.

Richard Yamarone, chief economist at Argus Research Corp., said that while most investors remain cautiously optimistic, they found what they were looking for in the mix of reports.

“You’re getting continued signs that the economy is no longer in the deep throes of the recession,” he said. “That’s what’s on investors’ minds right now and they’re getting the positive news they wanted.”

Liz Dunn, retail analyst at Thomas Weisel Partners Group, attributed the rise in the retail index to a recent string of surprising first-quarter earnings and hopes of improved May comps.

People broadly believe they are going to be better,” she said. “The better-than-expected whispers out there are the biggest factor.”

Looking ahead to Thursday’s comp results, Todd Slater, analyst at Lazard Capital Markets, wrote in a research note that May same-store sales are expected to decline 6 percent, excluding Wal-Mart Stores Inc., and that promotional levels have eased since the fourth quarter.

“We continue to believe that trends are stabilizing, although June and July will probably decelerate due to cycling last year’s stimulus checks (hurting June) and the push-out of tax-free holidays in most states into August (hurting July). May comps benefited from warmer temperatures…pent-up demand and compelling promotions.”

Jeffrey Klinefelter, senior equity analyst at Piper Jaffray, said many retailers’ business models have benefited from inventory reductions and other cost management. Top-line improvements would thus draw investors to the sector, he said.

“The retail group will participate in positive market momentum when any of the major economic indicators turn positive or at least less negative,” he said.

Despite the gains, the day also brought less encouraging news on the consumer spending front, at least in the short term. The Commerce Department reported that, while personal income rose 0.5 percent in April and disposable personal income gained 1.1 percent, consumer spending fell 0.1 percent due to a renewed focus on saving.

Klinefelter said the savings rate, with an improvement in the employment market, could eventually translate to greater spending.

“A replenished savings rate provides a very important cushion to consumers,” he said. “It’s a delicate balance right now between economic indicators.”