This could be as good as it gets for fashion stocks.

This story first appeared in the July 3, 2012 issue of WWD. Subscribe Today.

Retail shares helped lead equity markets higher in the first half as the U.S. job market strengthened, the weather was unusually warm and a flash of color in spring looks appealed to consumers who were looking perhaps to better days ahead.

But the tenor has changed and the outlook for the rest of the year has grown muddier. Worries over consumer weakness have come to the fore, Europe is still debt-wracked and trending toward recession, and the U.S. presidential election promises to shine a spotlight on the still-weak economy.

“I don’t think the consumer’s in a great spot,” said Paul Lejuez, retail analyst at Nomura Securities. “Balance sheets are still impacted, unemployment’s still high, wage growth is still low. We faced that in the first quarter, but the weather helped [retailers] win out.”

The U.S.-centric S&P Retail Index shot up 17.4 percent for the first six months of the year — a growth rate three times the 5.4 percent increase seen in the Dow Jones Industrial Average. In a global market basket of 90 fashion stocks complied by WWD, 60 gained ground in the first half and the average increase was 11.3 percent.

The Bon-Ton Stores Inc., which led the list with a 137.4 percent stock rise to $7.81, saw gains as Brendan Hoffman took the helm as chief executive officer and the company refinanced debt and posted better May sales. Also gaining rapidly were two newcomers — Salvatore Ferragamo up 61.1 percent to 16.40 euros, or $20.76, in Milan, and Michael Kors Holdings Ltd., up 53.5 percent to $41.84 in New York.

Heading in the other direction, J.C. Penney Co. Inc. saw its stock fall 32.9 percent as the market grew skeptical of ceo Ron Johnson’s reinvention of the chain, and Tiffany & Co. fell 19.3 percent to $52.95 amid signs of consumer weakness.

On Monday, the first day of trading in the second half, the S&P Retail Index gained 0.5 percent, or 3.08 points, to 617.37, as the Dow slipped 0.1 percent, or 8.70 points, to 12,871.39.

Retail built up its lead earlier in the year, spiked in late April and has eased back over the past two months.

“The first quarter was just huge,” said Andrew Fitzpatrick, director of investments at Hinsdale Associates. “We still have a nice cushion from that. The consumer was a lot more upbeat and more confident and some of that was the mild winter, but the other part was that the jobs reports were a little better and the general tone of the economy was moving in a better direction.”

The U.S. economy added more than 250,000 jobs in both January and February, a rate that fell to 77,000 in April and 69,000 in May. Consumer sentiment has ebbed and flowed with the job gains and the market. The Conference Board’s Consumer Confidence Index peaked at 71.6 in February and sunk last month to 62.

The result is a shopper that’s not paralyzed, but looking for reasons to hold back.

“There could be some bumps, but in general the consumer area is still showing strength and there’s pent up consumer power there,” Fitzpatrick said. “People are saving and deleveraging and they’re making the purchases, they’re just being more cautious about it.”

That leaves the onus on retailers and the brands themselves to convince shoppers that their fashions are worth the money. The trend toward bright colors, which buoyed sales earlier in the year, could help in this regard.

Corinna Freedman, an analyst at Wedbush Securities Inc., said, “The newness that we saw for spring, I can see that translating well for fall, inspiring another season of replenishing over refreshing our wardrobes. You can’t wear your spring color trend for the fall.”

Even so, Freedman said retail stocks could boast few positives for the second half, aside from falling cotton prices.

Then there are the politics of the day.

“I would expect that, overall, the second half for retail will be a lot more volatile because of all of the concerns over the [U.S.] election,” said Mark Montagna, an Avondale Partners analyst who focuses on value retailers. “Both sides are going to try to demonize the other side and that’s just going to create an overall…lack of confidence because, who do you believe?”

Offsetting that will be easier comparisons given the mild weather last year, but that might not be enough to save retail.

“The politics will outweigh the weather comparison,” Montagna said.

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