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Retail Stocks Sink 5.9%

Investors pushed retail stocks down 5.9 percent Tuesday, focusing on what was happening — or not happening — in malls around the country.

Investors pushed retail stocks down 5.9 percent Tuesday, focusing on what was happening — or not happening — in malls around the country rather than the swearing in of President Barack Obama on the National Mall in Washington.

This story first appeared in the January 21, 2009 issue of WWD.  Subscribe Today.

The retail drop was the worst since Dec. 1 as the Standard & Poor’s Retail Index slid 16.51 points to 262.90 and analysts weighed in with fresh concerns about Polo Ralph Lauren Corp. and J.C. Penney Co. Inc. The Dow Jones Industrial Average sank 4 percent, or 332.13 points, to 7,949.09 on fears the banking sector might need even more cash to stay afloat.

Zale Corp. was hurt worse than most in the retail sector and its stock fell 17.7 percent to $2.37. After the market closed, Zale said its chief financial officer, Rodney Carter, had left the company. The post will be picked up on an interim basis by Cindy Gordon, senior vice president and controller.

As consumer weakness increasingly weighed on firms of all stripes, Polo was off 9.4 percent to $37.25 and J.C. Penney was down 9.8 percent to $17.42.

“While Ralph Lauren’s brand equity has typically enabled it to remain relatively unscathed in prior discounting periods, today’s shift from aspirational to desperational spending has likely impacted the brand,” said Adrianne Shapira, equity analyst at Goldman Sachs, in a research note.

“Ralph Lauren is the aspirational brand across every channel: Chaps and American Living in Kohl’s and J.C. Penney; Lauren and Polo in Macy’s and Bloomingdale’s, and Black Label in Saks and Neiman Marcus,” said Shapira, who downgraded the stock to “sell” from “neutral” and set a target price of $37.

Shapira noted Tiffany & Co., Coach Inc., Nordstrom Inc. and The Estée Lauder Cos. Inc. have all set the profitability bar lower and said she expected Polo’s third-quarter report on Feb. 4 to show signs of weakened fundamentals across its wholesale, retail, outlet and European businesses. On Tuesday, shares of Estée Lauder bucked the broader trend and inched up 1 cent to $26.12.

And anything having to do with credit is still stoking the interest, or fears, of investors.

J.C. Penney, in response to what it described as “unfounded market concerns” involving the retailer’s revolving credit facility, said the company has no debt coming due until March 2010 and it expects to have more than $2 billion in cash on Jan. 31, the end of the current fiscal year. The retailer also is in talks with its banks to modify or replace the credit facility expiring in April 2010.

“J.C. Penney has one of the strongest balance sheets in the retail industry and a cash position that is more than sufficient for all of our needs,” said the company. “Given this, there is no basis for any concern about our credit facility.”

Charles Grom, equity analyst at J.P. Morgan Chase & Co., raised warning flags that J.C. Penney could break covenants in its credit facility, which require, among other conditions, the maintenance of certain levels of debt-to-EBITDA (earnings before interest taxes depreciation and amortization).

Grom said an amendment to the facility would come at higher costs. He also reduced his fourth-quarter target for the company to earnings of 92 cents a share from 97 cents.

Other retailer decliners for the day included Saks Inc., down 15.8 percent to $2.83; Charming Shoppes Inc., 15.6 percent to $1.19; Macy’s Inc., 10.6 percent to $8.73; The Men’s Wearhouse Inc., 10.1 percent to $11.98; Hot Topic Inc., 9.4 percent to $8.31; American Eagle Outfitters Inc., 9.2 percent to $9.14; AnnTaylor Stores Corp., 8.2 percent to $4.62; Nordstrom Inc., 7.5 percent to $12.01; Target Corp., 7.1 percent to $32.55; Coach Inc., 6.7 percent to $15.87 and Tiffany & Co., 6.7 percent to $21.30.

Vendors losing ground also included Liz Claiborne Inc., down 15 percent to $2.09; Jones Apparel Group Inc., 11.1 percent to $3.94 and True Religion Apparel Inc., 9 percent to $10.73.