S&P Retail Index

Talk of a recession — real or not — spooked Wall Street on Wednesday, resulting in seesaw trading that rocked retail stocks.

This story first appeared in the January 10, 2008 issue of WWD.  Subscribe Today.

The Dow Jones Industrial Average fluctuated over 200 points during the session, from as low as 12,502.33 in afternoon trading before rebounding and closing up 1.2 percent at 12,735.31. The broader S&P 500 ended the day up 1.4 percent at 1,409.13, after sliding into negative territory earlier. But on the eve of the release of December same-store sales today, which analysts expect to be lackluster, it was the S&P Retail

Index that swooned the most.

In the afternoon trading session, the retail stock index was down 2 percent. Stocks across all channels were off between 3 and 10 percent. Scrambling for bargains in the last hour of trading, investors gobbled up key retail shares. As a result, the S&P Retail Index finished the day up 0.6 percent at 375.15. Still, since early December, the S&P Index is down more than 15 percent.

“Everyone is trying to figure out if we are in a recession or just a protracted consumer slowdown,” said Citigroup equity analyst Deborah Weinswig. “The difference is in a recession it will take longer for retailers to improve than if it’s a customer slowdown in spending.”

The analyst said that shares of department stores look really cheap, but investors are waiting for 2008 profit guidance from the sector. Weinswig added that a rally in the last hour of trading Wednesday could be from the anticipation of not seeing a lot of downward revised earnings during today’s same-store sales reports.

Meanwhile, stocks in the sector were volatile. Retail giant Wal-Mart Stores Inc. saw shares fall over 1.5 percent in afternoon trading to $45.24, before closing up 2 percent to $46.90, while competitor Target Corp. went on a similar ride before finishing the day up 1.98 percent at $49.92 even as its chairman and chief executive Robert Ulrich said he would step down as ceo in May.

Department stores Macy’s Inc., J.C. Penney Co. Inc. and Kohl’s Corp. saw steep declines of over 3 percent during the afternoon session. But when the dust cleared, Macy’s closed up 3.9 percent to $22.67, J.C. Penney spiked 4.1 percent to $36.02, and Kohl’s shares rose 1.1 percent to $40.21.

Sears Holdings Corp. rose 0.7 percent to $97.01 at the bell after falling over 5 percent in midafternoon trading, while Saks Inc. remained in the red after plummeting 9 percent earlier in the day. At the bell, shares of the high-end department store closed down 0.7 percent at $17.23.

Despite filling their leadership spot at the J. Jill brand on Tuesday, Talbots Inc. shares fell to a new 52-week low Wednesday. Shares lost 9.5 percent to end the day at $8.02.

Gap Inc. rose two cents to $19.35, while Limited Brands Inc. was down 0.25 percent, closing at $15.69.

J. Crew Group, which managed to stay out of the red earlier in the week and is expected to be one of the few apparel retailers to do well in 2008, lost over 6 percent in the afternoon session. The specialty retailer rebounded to close up 0.8 percent to $42.42.

But it was Gottschalks Inc. that topped the New York Stock Exchange’s biggest decliners list, plunging 14.6 percent to $2.04, a new 52-week low.

The recessionary fears that created a tumultuous trading session Wednesday follow a sea-change in the retail market. Three solid years of accelerated consolidation in the department store sector, which included the Federated Stores-May Department Stores mega-merger and a break up of Saks’ department store group, along with recent softness in consumer spending across all channels, is having a huge impact on business.

Additionally, during the fourth quarter and in the post-holiday shopping season, retailers have charged ahead with aggressive markdowns to lure shoppers into stores.

As a result, vendors such as Kellwood Co. and Liz Claiborne Inc., which is in the process of selling a bulk of its brands, have been forced to reposition their businesses. Earlier this week, Hartmarx Corp., for example, said it expects to post flat year-over-year sales along with a 9 cents-a-share loss as “retailers…will report very disappointing Christmas sales and earnings.”

But ShopperTrak RCT Corporate’s National Retail Estimate claimed retail sales for the 2007 holiday season surpassed its expectations, increasing 4.5 percent. Individually, November sales grew 6 percent and jumped 3.5 percent in December. ShopperTrak originally predicted a 3.6 rise for the season

In the meantime, Wall Street is waiting for the Federal Reserve to cut interest rates when the board meets in three weeks, but it’s unclear whether this will be enough to quell the fears associated with a spike in unemployment, a housing market downturn and rising gas prices. Today, Fed chairman Ben Bernanke is scheduled to speak at the Federal Open Market Committee meeting on “Financial Markets, the Economic Outlook, and Monetary Policy.” UBS economist Maury Harris said he believes “this could be a significant speech.” The economist said minutes from the last FOMC meeting “emphasized uncertainty and avoided an assessment of the balance of risks to the economy.” Harris noted that the FOMC was urged to prepare to adjust monetary policy “if prospects worsen.”

“Prospects appear to have worsened: The sharp rise in the unemployment rate and the weakness in financial markets darken the economic outlook,” Harris said. “We expect Mr. Bernanke will speak about the accumulating threats to the outlook for growth and will reiterate that slowing output diminishes inflation pressures. If so, he will open the door to more aggressive easing.”

So far, market volatility has been the theme for the year.