By  on April 27, 2009

Retail stocks rose 2.7 percent Friday, cementing the sector’s seventh-straight week on the rise despite continued concerns about shoppers and sales.

The S&P Retail Index increased 8.90 points to 338.23 for the day and advanced 1.7 percent for the week. The Dow Jones Industrial Average fell 0.7 percent for the week to close at 8,076.29.

The disconnect between weak sales in stores and rallying markets has been sharp and, in part, a sign of just how far retailers have fallen. Despite their 51.5 percent advance since March 6, retail stocks are still down 37.2 percent from their high in February 2007.

With retailers such as Mervyns, Goody’s, Linens-N-Things, Circuit City and Steve & Barry’s part of the retail graveyard, real estate firms are also getting squeezed as they scramble to fill the space.

The percentage of leased space in Developers Diversified Realty’s shopping center portfolio fell to 90.7 percent at the end of the first quarter, down from 95.6 percent a year earlier. The percentage falls to 88.4 percent — a historic low — when the now-vacant Mervyns is factored in.

“The industry as a whole is expected to see more fallout during the first quarter of 2009, and while there are retailers currently facing severely deteriorating operating fundamentals, a significant portion of our core retailers continue to prove their resilience amid the challenging economic climate,” said Daniel Hurwitz, president and chief operating officer of Developers Diversified. Among the concepts most aggressively expanding with the developer are Forever 21, Nordstrom Rack, Ross Dress for Less, T.J. Maxx and Marshalls.

The company’s funds from operations, a key metric for real estate companies, increased 40.9 percent in the first quarter to $150.6 million, driving shares of the company ahead 11.4 percent to $3.90 Friday. The stock gained 24.6 percent for the week.

Among the top retail gainers for the week was Saks Inc., which managed a 40.7 percent boost to $4.98 after a J.P. Morgan upgrade earlier in the week. Destination Maternity Corp. was also on the way up with a 37.5 percent increase to $10.63 after besting second-quarter expectations.

Shares of Target Corp. fell 1.1 percent last week to $40.08 as the company continued to trade barbs with activist investor William Ackman.

On Friday, Ackman sent a letter to Target shareholders inviting them to attend a May 11 town-hall-style meeting with him and the other four people he’s nominated to the retailer’s board. Ackman, who through his Pershing Square fund controls 7.8 percent of Target, has said his proposed directors have more relevant experience in retail, real estate and credit cards than the company’s nominees.

“The deficit of relevant experience on Target’s board has contributed to the company’s underperformance during this recession,” said Ackman.

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