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Retail Rebound: Industry Shares Ride Citi Wave

Word of Citigroup profit lifts S&P Retail, major indices.

Beleaguered retailers regained some of the ground recently lost on Wall Street Tuesday, and many of the biggest gains went to the most battle-scarred firms.

This story first appeared in the March 11, 2009 issue of WWD.  Subscribe Today.


Retailers didn’t prompt the buying spree, a distinction that went to Citigroup Inc. after the company reported it had operated profitably in the first two months of the year. But, along with financial stocks, the retail sector was among the biggest beneficiaries of the one-day run-up.

The S&P Retail Index logged a 17.66 point, or 7.7 percent, gain for the day, its biggest percentage increase since the 8.1 percent pickup of Nov. 13 and the sixth largest since its recalibration in June 2002. The top two advances in the index were a 13.6 percent jump last Oct. 28 and a 10.6 percent bound on Nov. 24.

 

The Dow Jones Industrial Average flirted with a return to 7,000 territory, gaining 379.44 points, or 5.8 percent, to 6,926.49, while the S&P 500 crossed back over 700, rising 43.07 points, or 6.4 percent, to 719.60. The Nasdaq Composite managed a robust 89.64, or 7.1 percent, advance to 1,358.28.

Earlier in the day in Europe, London’s FTSE 100 rose 4.9 percent to 3,715.23 while the CAC 40 in Paris shot up 5.7 percent to 2,663.68. In Asia, Hong Kong’s Hang Seng Index gained 3.1 percent to 11,694.05, but the Nikkei 225 in Tokyo fell back 0.4 percent to 7,086.03.

Among U.S. stocks tracked by WWD, real estate investment trusts managed the largest percentage gains, but included among the best performers were some issues that had suffered mightily under the weight of the recession. Dillard’s Inc. was up 95 cents, or 27.8 percent, to close at $4.37 on the New York Stock Exchange, essentially wiping out declines that dated back to Feb. 18 and putting it 10 percent above its close on the last trading day of 2008.

Saks Inc. appeared poised to have a winning day as it leaped 17 cents, or 9.5 percent, to $1.96 in morning trading, only to finish the day down 22 cents, or 12.3 percent, at $1.57. In the final 90 minutes of the session, 13.8 million shares of Saks stock were sold for $1.50 each, matching the company’s 52-week low and lifting its volume for the day to nearly 20.6 million shares, more than 11 times their average.

Saks declined to comment on the transaction, but, according to separate Securities and Exchange Commission filings from last month, only two entities were in a position to sell so large a block — Mexican billionaire Carlos Slim Helú’s Inmobiliaria Carso, holder of 25.6 million shares, or 18 percent of those outstanding, and Marsico Capital Management LLC, which has 20.2 million shares for a 14.3 percent stake.

 

 

In addition on Tuesday, Standard & Poor’s Ratings Services late in the day lowered its ratings on Saks to “B-minus” from “B” based on the belief “that the company will be more challenged than previously expected by the current recession in the U.S. and the turmoil in the financial markets,” according to S&P credit analyst Diane Shand. Despite conservative planning by the retailer and expectations of a “modest” profit boost from cost cutting, S&P said material improvement in margins was unlikely because of “weak consumer demand, lack of sales leverage and promotional activity.”

Other retailers, however, basked in the glow of one of the first solid sessions of the year. In addition to word of Citigroup’s profits, the markets were reassured by comments from Federal Reserve Board chairman Ben Bernanke, who addressed the need for greater regulatory oversight of the financial system, and Rep. Barney Frank (D., Mass.), chairman of the House Financial Service Committee, suggesting the uptick rule regarding short selling of stocks might be reinstated by the SEC.

Margaret Whitfield, retail analyst at Sterne, Agee & Leach Equity Research, observed, “Things other than retailing led to the strong performance on Tuesday, but this might show that we’re getting close to the bottom on consumer confidence, and there might be something in that February same-store sales were a bit better than expected.”

To bolster that confidence, government action is needed, she added: “It’s my belief and hope that the government’s now focusing on building confidence and that could lead to further improvement. Retail stocks are always a leader in a market turn.”

At least on Tuesday, reassurance was provided for some of the companies that needed it most. Tween Brands Inc., which has seen its stock drift downward since it opted in August to convert its Limited Too stores to its Justice nameplate, saw shares jump 23.2 percent to $1.33, its highest close of the month.

Other recently hard-hit retailers with increases for the day included Nordstrom Inc., up 12.2 percent to $13.85; Limited Brands Inc., up 12.2 percent to $7.16; J.C. Penney Co. Inc., up 10.5 percent to $15.67, and a large number of specialty retailers.

However, American Apparel Inc., with two financial deadlines looming, saw shares sink 8 percent to $1.26 and hit a new 52-week low of $1.20 in intraday trading.