By  on January 7, 2009

Retail stocks managed to ignore the negative outlook on consumer spending and extend their rally Tuesday, rising 2.3 percent for the fifth positive trading session in a string that began Dec. 30.

The Standard & Poor’s Retail Index rose 6.87 points to close at 301.62, which is 45.4 percent above its all-time low of 207.49 on Nov. 21. The Dow Jones Industrial Average gained 0.7 percent, or 62.21 points, to 9,015.1.

It is unclear if investors will maintain their appetite for the sector as the impact of the holiday season comes into sharper focus when major chains report December same-store sales on Thursday.

Some stocks might have risen too far, too fast after plunging last fall.

Shares of Christopher & Banks Corp. dropped 10 percent to $4.84 Tuesday after Crystal Kallik, a D.A. Davidson & Co. equity analyst, said the stock had “significant downside risk” after rising 85 percent last month.

“Our channel checks over the past month have indicated that traffic and sales trends have weakened while markdowns and promotions continue to accelerate,” Kallik said. “The current valuation is too lofty given the company’s weak execution.”

Kallik downgraded the stock to “underperform” from “neutral” and said Christopher & Banks likely would struggle as the misses’ customer defers purchases. The company will report third-quarter earnings after the market closes today.

Stocks are swinging back and forth partly because investors are struggling with a new retail landscape, one in which financing is hard to come by and consumers are changing their patterns.

Results of a survey by WSL Strategic Retail found that many shoppers are trading down in the recession.

“During the escalating downturn of the last six months, a third of shoppers — 36 percent — tell us they’ve changed where they buy something to save either time or money,” according to a WSL report. “Mass merchandisers appear to be the big winners, with 32 percent trading into a Wal-Mart or Target, but 15 percent of shoppers also traded out of this channel.”

Shares of Wal-Mart Stores Inc. dipped 0.9 percent to $56.02 on Tuesday, and Target Corp.’s stock increased 5.5 percent to $38.11.

Liquidity remains a major concern for investors seeking to buy into companies that have shored up their financing.

The Talbots Inc.’s shares jumped 33.3 percent to $3.12 after reports Monday that the retailer reworked credit agreements, transforming uncommitted working capital lines to committed lines. Talbots now counts $200 million of its $215 million working capital borrowing capacity as committed facilities.

Vendors also have faced stricter lenders when refinancing.

Last month, Jones Apparel Group negotiated a $600 million amended credit facility, which gave it some additional financial flexibility.

Debt watchdog Standard & Poor’s on Tuesday lowered its ratings on $750 million of Jones’ unsecured debt to “B-plus” from “BB-minus” because the credit facility is “dilutive” to the recovery prospects of the notes. Shares of Jones advanced 5.4 percent to $6.29.

Among the others gaining on Tuesday were: Eddie Bauer Holdings Inc., up 47.1 percent to $1; Caché Inc., 11 percent to $2.12; The Bon-Ton Stores Inc., 10.8 percent to $1.54; Nordstrom Inc., 4.7 percent to $15.91; Charming Shoppes Inc., 4.6 percent to $2.28; J.C. Penney Co. Inc., 4.6 percent to $22.50; Aéropostale Inc., 4.5 percent to $19.33; Charlotte Russe Holding Inc., 6.5 percent to $6.59; Kohl’s Corp., 4.4 percent to $39.21; Chico’s FAS Inc., 4.2 percent to $4.02; Saks Inc., 4.1 percent to $4.58, and Destination Maternity Corp., 4.1 percent to $8.31.

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