By and  on March 14, 2005

NEW YORK — After taking a beating on the prospects of higher gas prices this summer of $2.15 a gallon, retail and vendor shares retreated last week.

As a result, the WWD Composite Stock Index fell 1.2 percent to 1,161.03. The S&P 500 dropped 1.8 percent, week-over-week, to 1,200.08.

Aside from fuel costs, the biggest attention grabber on Wall Street last week was a bullish report from UBS analyst Gary Balter, who tagged shares of Kmart Holdings Inc. with a $160 price target.

On Friday, Kmart’s stock jumped as investors digested the upbeat report. Shares of Kmart rose more than 14 percent in the after-trading session. By the end of the day, the stock closed up 13.3 percent to $127. Sears, Roebuck & Co. also soared on the news, closing Friday’s trading session up 7.9 percent to $57.56.

Balter upgraded shares of both retailers, who are looking to get shareholder approval on their proposed $11 billion merger later this month, to “Buy 2.”

In the report, Balter said the “cash flow opportunities [are] too good to ignore” and added that his $160 price target is “based on the ability of the company after the merger with Sears to generate significant cash flow through asset sales, cross-selling of proprietary brands, and cost savings, particularly at Sears.”

Still, Balter said the deal has risks. “Unlike pre-merger Kmart, the asset support does not offer as much protection and the commodity nature of Sears’ key products make one key element of the Eddie [Lampert] story, price increases, less available. Yet, the potential for cost-cutting and vendor support is compelling.”

Lampert, the hedge fund wizard who bailed Kmart out of bankruptcy, is credited with turning around specialty auto parts retailer AutoZone. As a result, Balter said “Eddie stories work best early,” and AutoZone “continues to show cost savings after five years.”

Meanwhile, shares of Quiksilver Inc. hit a new 52-week high in New York Stock Exchange trading Friday following the release of strong first-quarter numbers after Thursday’s market close. Spurred by revenue increases in all geographic markets and the addition of DC Shoes, the firm said net income in the three months ended Jan. 31 rose 54.9 percent to $14.2 million, or 23 cents a share, from $9.2 million, or 16 cents, in the first quarter of the prior year. Revenues rose more than one-third to $342.9 million from $256.1 million in the year-ago quarter. European revenues rose 24.9 percent to $132.6 million and were up 16 percent in euros. The firm, based in Huntington Beach, Calif., currently expects full-year earnings of between $1.62 and $1.65 a share on sales of between $1.48 billion and $1.5 billion. Quiksilver’s shares closed the day up 6.5 percent to $34.99 after hitting the new 52-week high of $35.61 in intraday trading.WWD COMPOSITE STOCK INDEX VS. S&P 500

Weekly % Changes Ending March 11
Largest Gainers
Largest Losers
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Wet Seal
Wilsons Leather4.5811.17
Deb Shops
Stage Stores

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