By  on August 19, 2009

Retail stocks climbed 1.8 percent Tuesday, regaining almost half of the ground lost in Monday’s sell-off.

The S&P Retail Index rose 6.18 points to 354.64, after starting the week with a 13.23-point decline as investors around the world fretted about consumer spending. The Dow Jones Industrial Average also won back some lost ground and increased 0.9 percent, or 80.60 points, Tuesday to close at 9,217.94. Global markets sprang back as well, with the FTSE 100 in London and the CAC 40 both up 0.9 percent. The Hang Seng Index in Hong Kong advanced 0.8 percent.

J. Crew Group Inc. was one of the strongest stocks, advancing 7.9 percent to $30.37 after an upgrade from John Morris, an analyst at BMO Capital Markets. Morris said J. Crew is poised to take share from department stores, which he said have been overly cautious and cut back their inventories too much.

Morris upgraded J. Crew to “outperform” from “market perform” and raised his target price on the stock to $35 from $25. The analyst said J. Crew’s early fall business was off to a “brisk start,” and the brand’s mix of fashions, including boyfriend blazers, novelty T-shirts, coats with ruffles and skinny bottoms were on target.

“We believe [J. Crew] is taking market share from department stores, which are playing it conservatively,” Morris said. “Anchors have taken a cautious approach to current fashion trends, which we think has resulted in stale, unexciting assortments.”

In addition to cutting inventories too much, Morris said department stores have rebalanced assortments in favor of their own private label goods.

After last year’s weak holiday season, when shoppers pulled back and stores slashed prices dramatically, caution among merchants would seem understandable. But experts have begun to warn chains against cutting back too far because, until recently, the emphasis was solely on being lean enough to survive the downturn.

On Tuesday, three major retailers — discounter Target, off-pricer TJX Cos. and luxury department store chain Saks — reported second-quarter earnings that demonstrated the complexity of the tug-of-war between caution and aggressiveness. Target Corp. turned in lower profits and Saks Inc. reported wider losses, but both chains managed to beat analysts’ expectations and were cheered by investors. Target’s stock rose 7.6 percent to $44.32 as Saks’ increased 6.9 percent to $5.72. However, shares of The TJX Cos. Inc. fell 3 percent to $34.33 despite increases in earnings and both net and same-store sales.

Other gainers for the day included The Bon-Ton Stores Inc., up 13.3 percent to $4.10; Coldwater Creek Inc., 4.3 percent to $6.59; Caché Inc., 4.2 percent to $4.96; Zale Corp., 3.7 percent to $5.87; Urban Outfitters Inc., 3.3 percent to $28.12; The Talbots Inc., 3.1 percent to $5.39, and American Apparel Inc., 2.9 percent to $3.53. Shares of Dillard’s Inc. rose 6.1 percent to $10.60 a day after it reported a reduced loss.

On the vendor side, Perry Ellis International Inc. advanced 7.2 percent to $8.92 ahead of the release of its second-quarter results today.

In other economic news, housing starts fell in July to a seasonally adjusted annual rate of 581,000, marking a 1 percent drop from June and a 5.1 percent decline from a year earlier, the Commerce Department said.

“New building will likely contribute to a continuation in the decline in home prices this year, but it will also stabilize construction job losses and greatly reduce the drag of declining residential investment on [third-quarter gross domestic product],” said Charles McMillion, president and chief economist at MBG Information Services.

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