Despite news that might have caused outright panic a year ago — the bankruptcy of General Motors Corp., 345,000 new job losses and monthly same-store sales declines of more than 25 percent for both Neiman Marcus Inc. and Saks Inc. — retail stocks pushed ahead 4.8 percent last week.
The S&P Retail Index increased 15.20 points to 334.12 last week as the Dow Jones Industrial Average advanced 3.1 percent, or 262.80 points, to 8,763.13. Shares of Saks fell 1.8 percent for the week to $3.75. Neiman Marcus is privately held.
Stocks held up, in part, because the GM insolvency seemed to be somewhat orderly, job losses were better than the 525,000 expected and sales of luxury goods have been so bad that double-digit drops are no longer surprising.
The markets also held their own because of a continuing sense that consumers could be loosening their purse strings, at least a bit.
The NPD Group Inc.’s Retail Response Indicator, a survey measuring consumers’ spending intentions, rose to 43.9 in May from 39.5 in April and 35.9 in March. The indicator runs from 0 to 100, with 0 representing “reduce or spend less” and 100 representing “spend more.”
“We are seeing consumers move toward replacement and replenishment purchasing and these are the kinds of purchases that would indicate we have taken the first step toward recovery,” said Marshal Cohen, the research group’s chief industry analyst.
While there are still more questions than answers about the U.S. consumer, Spencer Leung, a UBS equity analyst in Asia, upgraded Li & Fung to “buy” from “sell” Wednesday, noting the sourcing company would benefit as both U.S. consumers and retailers look to stretch their dollars.
Shares of Li & Fung shot up 20.8 percent to 25 Hong Kong dollars, or $3.23, last week, outpacing the market. The Hang Seng Index, of which the firm is a component, rose 2.8 percent to 18,679.53.
Leung said a hike in commodity prices could force U.S. consumers to trade down in their purchases. “Given that [the] unemployment rate will likely remain at a high level in 2010...U.S. consumers will likely once gain resort to cheaper alternatives,” he said. Li & Fung sells goods to Wal-Mart Stores Inc. and many other retailers and vendors.
The sourcing firm could also get a boost from a bit more deal making. Already this year, the company took on all of Liz Claiborne Inc.’s production and has a nonbinding agreement to become The Talbots Inc.’s primary sourcing agent.
“[Li & Fung’s] strong financial capacity could attract more retailers with working capital constraint[s],” Leung said.
Li & Fung could also buy a company outright.
“We need a major acquisition or outsourcing deal to meet our targets in the three-year plan,” president Bruce Rockowitz told reporters last month, according to a published report. The company recently held a stock sale that raised $345.8 million to be used for business expansion and general working capital.
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