Retail stocks logged their second biggest gain of the year Thursday while the Dow Jones Industrial Average retook the 10,000 mark, reversing losses during the week driven by skittishness over the strength of the global economic recovery.

This story first appeared in the May 28, 2010 issue of WWD. Subscribe Today.

Retail stocks shot back 3.1 percent Thursday, their second largest gain of 2010 behind the 5.7 percent advance of May 10, as markets continued to vacillate between fears the European debt crisis would deepen and hopes that it will be stopped and the U.S. recovery will remain on track.

Having lost 1.2 percent on Wednesday, the S&P Retail Index jumped 13.35 points to 448.59. The Dow Jones Industrial Average gained 284.54 points, or 2.9 percent, to end at 10,258.99. Wednesday marked the Dow’s first close below 10,000 since February.

Thursday’s latest rally was sparked by China, which assured markets it would continue to invest in Europe. Still, faced with issues ranging from the growing tensions on the Korean Peninsula to the oil circulating in the Gulf of Mexico, investors are expected to continue their volatile behavior.

Wall Street’s upbeat day followed positive results in Asia and then Europe. The Nikkei 225 rose 1.2 percent to 9,639.72 in Tokyo as the Hang Seng Index also increased 1.2 percent, to 19,431.37, in Hong Kong. And European investors drove the CAC 40 up 3.4 percent to 3,525.31 in Paris, as the FTSE 100 advanced 3.1 percent in London and the DAX rose 3.1 percent to 5,937.14 in Frankfurt.

The vote of confidence from China appeared to be just what the markets needed after grueling trading conditions throughout the week. In addition to expressing confidence Europe would overcome its financial difficulties, China said it continues to be a “responsible and long-term” investor and follows a principle of diversification as it invests its foreign exchange reserves.

“It’s a bit of two steps forward, one step back,” said John Long, retail strategist at Kurt Salmon Associates, noting the European troubles could take months to calm.

Long said retailers are being as flexible as possible in their plans for fall, trying to avoid inventory risk while preparing for quick turns on key items should consumers keep spending.

“The market is becoming much more volatile as time goes on, and I think that’s a big negative in terms of consumer psychology,” said Robert F. Buchanan, an assistant finance professor at Saint Louis University and former research analyst.

The U.S. also is battling a heavy debt load and continued housing problems. “Consumer spending is going to remain lethargic over the next two or three years,” Buchanan said.

Against that backdrop, two jewelers catering to two different segments of the consumer marketplace, Tiffany & Co. Inc. and Signet Jewelers Ltd., reported large first-quarter gains Thursday.

Shares of New York-based Tiffany rose $3.27, or 7.5 percent, to $46.86 after the retailer said it expected annual earnings per share from continuing operations in the $2.55 to $2.60 range, above Wall Street’s $2.51 a share estimate.

On the company conference call, James Fernandez, executive vice president and chief financial officer, said his company remained “cautious” despite the updated outlook.

“We expect to achieve improvements in the areas of in-store product assortment, inventory management and in our allocation of marketing spending, which should ultimately lead to a greater growth in sales and market share,” he said. “This will be an important driver in our overall pursuit of substantial growth around the world.”

Also helping to drive growth are what he called “robust” 2010 expansion plans, which include opening 16 stores worldwide — six stores in the Americas, eight in Asia-Pacific and two in Europe.

During the first quarter ended April 30, Tiffany’s net income nearly tripled to $64.4 million, or 50 cents a diluted share, from $24.3 million, or 22 cents a share, in the year-ago period. Revenues jumped 22.4 percent to $633.6 million, from $517.6 million, thanks in part to increased sales of jewelry of more than $50,000. Analysts anticipated earnings of 37 cents a share on sales of $611.9 million. The bulk of Tiffany’s revenue came from international stores and the Fifth Avenue flagship in New York City.

Sales in the Americas rose 22 percent to $315.3 million and comparable-store sales increased 15 percent. Comps at the New York flagship jumped 26 percent. In Asia-Pacific, sales soared 50 percent to $122.3 million, as comps increased 21 percent.

Revenue in Europe grew 25 percent to $68.6 million, with comps up 14 percent. Across all regions, comps increased 10 percent.

At Signet Jewelers Ltd., chief executive officer Terry Burman remarked on a conference call with analysts that his company also got a boost from the “continued recovery in spending by the upper-middle-market consumer.”

For the first quarter ended May 1, Signet said net income nearly doubled to $52 million, or 60 cents a diluted share, from year-ago profits of $26.3 million, or 31 cents a share. Sales at the company’s upscale chain, Jared the Galleria of Jewelry, grew 15.8 percent, helping to lift net sales 6.2 percent, to $810 million from $762.6 million. Comps increased 5.8 percent.

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