NEW YORK —Goldman,Sachs &Co.analyst George Strachan on Tuesday reduced both long- and short-term earnings esti- mates for a large group of broadlines retailers.

Strachan,enior retail ana- lyst at GS,pulled down expecta- tions for annual growth in department tore earnings per share to a range of 4 to 8 percent over the next five years,marked down from the earlier forecast of 4 to 12 percent annual growth.

In a research note,Strachan lowered estimates of fourth- quarter profits 1.7 percent.In a stinging rebuke of those looking for a retail turnaround in early 2003,he shrank estimates for the first quarter of next year by 3.9 percent and for the full year 3.2 percent.

"Our new first-quarter 2003 estimates reflect weakening consumer fundamentals against the most difficult earnings com- parison of the year," he said..

Of 15 companies covered in Tuesday ’s research note,only J.C.Penney its long-term EPS growth projections raised, to 6 percent a year from 4 per- cent.EPS growth rate expecta- tions were maintained for Kohl ’s, Nordstrom and Dillard ’s at 24,8 and 4 percent,respectively.

However,Strachan reduced expectations 4 percent for The Neiman Marcus Group and Finlay Enterprises (to 8 and 6 percent,respectively)and 3 per- cent for Federated Department Stores,The May Department Stores Co.and Sears,Roebuck &Co.(to 8,6 and 5 percent,re- spectively).While Costco,Saks, Tiffany and Zale sustained 2- point cuts (to 12,6,13 and 8 per- cent,respectively),Wal-Mart Stores was trimmed by a ingle point to 13 percent,and Target Corp.underwent the same re- duction,to 14 percent.

Commenting on the more near-term outlook for investors, he noted that retail stocks have underperformed the broader market by 14.5 percent over the past three months and relative price-earnings ratios are now typically below five-year aver- ages.However,Strachan said that Goldman was "guarded "on the group anyway.

"With ignificant top-line and expense pressures likely in 2003, only partially offset by deflation- ary benefits to cost of goods old, further downward estimate revi- sions cannot be ruled out,"the report pointed out."We continue to rate Kohl ’s and Federated ‘outperform ’within our ‘cau- tious ’ view of the sector.."All of the other companies cited in Strachan ’s notes carry ratings of either "in line "or "underperform,"Goldman ’s two other tock grades.Of the 1,856 firms covered by the investment firm,53 percent have "in line " ratings versus 25 percent carry- ing "outperform "and 22 percent with "underperform " marks..

As difficult as holiday sales have proved to be,Strachan viewed fourth-quarter prospects in a more positive light than he did those for next year."Although fourth-quarter sales have been light going into Christmas,we be- lieve that,despite heavily publi- cized discounting,margins will be reasonably well maintained," he said in explaining his firm ’s 1.7 percent reduction in fourth- quarter EPS estimates.

Retail consensus estimates re- main above Goldman ’s —about 1.4 percent for the fourth quarter, 4.6 percent for next year ’s first quarter and 4.9 percent for all of fiscal 2003 —but Strachan does- n ’t consider that disparity likely to continue:"Although a post-hol- iday igh-of-relief rally in retail stocks would not be unusual in early 2003,we expect downward estimate revisions to keep a lid on retail stock performance over the next month."

The relatively gloomy out- look was tied to real-wage growth,"our favorite leading in- dicator of consumer spending."

"With real-wage growth de- celerating and debt ervice pay- ments at peak levels relative to disposable income,consumer budgets are already con- strained,"the report said. "Rising gasoline prices and higher tate and municipal taxes will take an additional bite in 2003.As a result,tepid top-line growth should prevail for most retailers against tough first-half comparisons."

In an abbreviated session of trading on Christmas Eve,the Dow Jones Industrial Average closed at 8,448.11,down 45.18 points,or 0.5 percent,and the Standard &Poor ’s Retail Index dropped 1.46,or 0.6 percent,to close at 262.84.

Among the department tore and national chains mentioned in the Goldman Sachs report: Penney ’s was down 8 cents,or 0.4 percent,to $22.25;Sears dropped 25 cents,or 1.1 percent, to $22.79;Federated closed up 6 cents,or 0.2 percent,at $27.90; May Co.was down 17 cents,or 0.8 percent,at $22.50;Kohl ’s dropped 31 cents,or 0.6 percent, to $54.52;Dillard ’s rose 26 cents, or 1.7 percent,to $15.65;Saks descended 27 cents,or 2.3 per- cent,to $11.48;Neiman Marcus elevated 14 cents,or 0.5 percent, to $29.24,and Nordstrom was unchanged at $18.78.Wal-Mart shares rose 11 cents,or 0.2 percent,to $49.70, but Target dropped 36 cents,or 1.3 percent,to $28.18.Costco dropped 15 cents,or 0.6 percent, to close at $27.24.

Among the jewelry issues mentioned,Finlay rose 10 cents, or 0.9 percent,to $11.32,but Tiffany dropped 36 cents,or 1.5 percent,to $24.29,and Zale dropped 61 cents,or 1.9 percent, to close at $30.99.

—With contributions from Jennifer Weitzman

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