What a difference the promise of a few hundred billion dollars can make.
Retail stocks surged Thursday as Congressional leaders signaled a multibillion-dollar mortgage bailout was indeed on the way to passage, the President and finally Wall Street. The Beltway gridlock broke less than a day after President Bush appealed to the nation in prime time, saying the need to buy up the toxic mortgage debt gumming up the financial system was dire.
The Standard & Poor’s Retail Index shot up 2 percent, or 7.41 points, to 371.33 — with strength throughout the industry from department stores and mass merchants to specialty chains. Prior to the ascent, the measure of retail stocks was down 7.7 percent for the week.
Still, it’s going to take more than a one-day rise to turn around the fortunes of retailers, which are facing an increasingly dour outlook for the next few months.
“This is going to be a terrible holiday season,” Deborah Weinswig, equity analyst at Citigroup Global Markets, said. “You’ve got the President basically pleading with America to agree with this bailout plan; that’s pretty frightening to a lot of folks. The consumers don’t know what all these headlines mean, they just know it’s bad. Everybody’s going to get their third-quarter 401k statement and it’s going to be bad.”
And then there are the self-inflicted retail woes.
“We’re in an environment where there’s no fashion to begin with and so there’s no reason to buy,” said Weinswig. “This just adds to it.”
The stress of weeks of Wall Street jitters comes on top of what was already a tough retail scene, where expectations for relief seem to keep sliding further into the future.
“People are working on two scenarios,” Monica Aggarwal, credit analyst at Fitch Ratings, said. “One is that things just don’t improve in ’09 — or, [number two], maybe they start to improve or stabilize in the back half of ’09.”
Rising unemployment, sinking home values and higher fuel and food prices have all conspired to sour the mood of the average shopper.
“The pressures on the consumer haven’t gone away,” said Aggarwal. “Their cash flow is still quite constrained and there’s still no catalyst that says that’s going to improve.”
In the stock market, retail managed to run head of the herd and beat out the Dow Jones Industrial Average, which ended the day up 1.8 percent, or 196.89 points, to 11,022.06. Before Thursday’s rally, the Dow was down 4.9 percent for the week. Disappointing news about jobs, housing and General Electric earlier in the day kept a lid on the bailout ebullience.
The biggest gainer among U.S. fashion and apparel stocks Thursday was Nike Inc., with a $5.74, or 9.7 percent, surge to $65.01 on the first trading day following the active company’s report late Wednesday of lower first-quarter earnings that still beat Wall Street estimates. Retail Ventures Inc., parent of Filene’s Basement and DSW, logged an 8 percent increase, closing at $4.34, while Dillard’s Inc. was up 7 percent to $12.54, nearly 65 percent above the 52-week low of $7.61 it hit on July 16.
However, Gottschalks Inc., coming off the news of an equity investment from Everbright Development Overseas, lost 3.5 percent to close at $1.40.
Among better department stores, Saks Inc. was up 1.9 percent to $9.17, but Nordstrom Inc. pulled back 1 percent to $29.51. Macy’s Inc. enjoyed a 6.4 percent jump, closing at $18.90, and Kohl’s Corp. saw its shares advance 2.4 percent, to $47.90. J.C. Penney Co. Inc. shares were up a fraction, rising 3 cents to $35.90.
Wal-Mart Stores Inc. and Target Corp. both rose 2 percent, to $60.12 and $50.22, respectively.
In the teen specialty sector, gainers included Pacific Sunwear of California Inc. (7 percent to $6.88), Hot Topic Inc. (6.3 percent to $6.54), American Eagle Outfitters Inc. (5.1 percent to $15.66) and Aéropostale Inc. (2.6 percent to $30.73). Abercrombie & Fitch Co. rose 3 cents to $39.50, but Urban Outfitters Inc. lost 1.3 percent and closed at $34.29. Pre-teen retailer Tween Brands Inc. enjoyed a 5 percent increase to $9.20.
Among misses’ retailers, The Talbots Inc. was among the fastest advancers, with a 6.8 percent increase to $13.90, while Christopher & Banks Corp., prior to filing its second-quarter earnings report, was down 3.4 percent, to $8.66. AnnTaylor Stores Corp. shares were off 3 percent to $21.44 and Chico’s FAS Inc. stock dropped 2.4 percent to $5.76. Other advances came from Coldwater Creek Inc. (5.6 percent to $6.18) and Charming Shoppes Inc. (4.7 percent to $5.34).
Despite the bailout-inspired lift on Thursday, there were new indications the housing market is still very much down and out. New home sales in August fell 11.5 percent to a seasonally adjusted annual rate of 460,000, down from 520,000 in July and the slowest growth since 1991.
The mortgage bailout, which reportedly would provide $250 billion in funds initially, is aimed at reversing that trend. Congressional negotiators reached an “agreement in principle” Thursday on a number of items in the Wall Street financial rescue plan proposed by the White House. They were due to iron out the specific language by day’s end, according to a spokesman for the House Financial Services Committee.
The plan hammered out by Democratic and Republican leaders was said to have found common ground on Congressional oversight, limits to executive compensation packages, a government stake in the equity of companies participating in the bailout and forbearance for responsible homeowners.
Presidential nominees Sens. Barack Obama and John McCain met with Bush, administration officials and Congressional leaders to discuss the bailout plan.
The House and Senate also indicated they would be working on a new, separate economic stimulus legislation.
In Tokyo, where there were few signs the mortgage bailout would move forward when markets closed, the Nikkei 225 fell 0.9 percent, or 108.50 points, to 12,006.53. Bucking the trend in that market, shares of Fast Retailing Co. Ltd. rose 1.6 percent to 10,490 yen, while department store operator Isetan Mitsukoshi Holdings Ltd.’s stock rose 2.3 percent to 1,264 yen.
Investors in London drove shares in the FTSE 100 up 2 percent, or 101.45 points, to 5,197.02. Burberry Group plc shares joined in on the rally, rising 2.1 percent to 410.50 pence. Other fashion-related issues on the exchange slid, with French Connection Group plc down 6.5 percent to 65 pence, Marks and Spencer Group plc, 1.4 percent to 228 pence, and Asos plc, 0.1 percent to 373.75 pence.
Across the continent it was generally a positive day for fashion and retail. Among the gainers were Luxottica Group SpA, up 4.5 percent; L’Oréal SA, 4 percent; Tod’s SpA, 2.8 percent; Inditex SA, 2.4 percent; Benetton Group SpA, 2.8 percent; LVMH Moët Hennessy Louis Vuitton, 1.9 percent, and PPR, 0.9 percent.