Investors appear to be hoping the retail downturn is nearing its bottom.

This story first appeared in the March 27, 2009 issue of WWD. Subscribe Today.

Retail stocks swelled 4.4 percent Thursday as investors weighed a new regulatory framework for the financial industry from Treasury Secretary Timothy Geithner against an official reading of just how quickly the economy shrank — 6.3 percent — in the fourth quarter.

The S&P Retail Index jumped 12.81 points to 301.52, its first close above 300 since Jan. 6, and outstripped the Dow Jones Industrial Average, which advanced 2.3 percent, or 174.75 points, to 7,924.56.

Best Buy Co. invigorated investors and proved it was still possible to impress Wall Street when its adjusted fourth-quarter earnings topped analysts’ estimates. The electronics retailer’s stock jumped 12.6 percent to $37.67.

Among the principal fashion beneficiaries of the market upside was Saks Inc., with shares ahead 15 percent to $2.07. The struggling luxury retailer has moved to and above the $2 level on several occasions in recent weeks, but hadn’t closed above that mark since March 4.

AnnTaylor Stores Corp. turned in an 18.9 percent gain to $5.54, reclaiming much of the ground it had lost since closing at $6.19 on March 4 and posting a wider-than-expected loss on March 6. Ann Taylor shares hit a 52-week low of $2.41 in intraday trading on March 9.

Another hard-hit fashion stock rising ahead of market trends was Liz Claiborne Inc., which advanced 16.2 percent to $2.44. Quiksilver Inc., struggling in a tough market as it shakes off the effects of its divestiture of Rossignol, was up 18.8 percent to $1.39.

Also on the upswing were Destination Maternity Corp., charging ahead 21.2 percent to $5.95; Charming Shoppes Inc., 19.7 percent to $1.82; New York & Co. Inc., 18.3 percent to $3.30; Zale Corp., 16.7 percent to $2.38; The Talbots Inc., 13.3 percent to $3.75; Chico’s FAS Inc., 10.4 percent to $5.41; Macy’s Inc., 10.2 percent to $9.66; Hot Topic Inc., 10.1 percent to $10.64, and Nordstrom Inc., 8.9 percent to $17.77.

Geithner told the House Financial Services Committee, “What we need is better, smarter, tougher regulation, because we’ve seen the costs of these weaknesses and gaps are catastrophic to the system as a whole.”

Securities and Exchange Commission chairman Mary Schapiro also got the market’s attention when she repeated that the SEC might reinstate the uptick rule as soon as next month.

Investors largely shrugged off news of a 6.3 percent decline in gross domestic product in the fourth quarter as well as word of another rise in state unemployment claims.

Real gross domestic purchases, which measures turnover of goods and services produced in the U.S. and abroad, decreased 5.9 percent in the fourth quarter, down from a 1.5 percent decline in the third quarter, when overall GDP fell 0.5 percent, according to the Commerce Department.

Nariman Behravesh, chief economist at IHS Global Insight, said the fourth quarter was setting the stage for an “awful” first quarter, which could mark an economy that is close to the bottom. “All the incoming data suggest that the economy will contract by a staggering 7 percent to 8 percent in the first quarter, before the economy begins to stabilize,” Behravesh said. “IHS Global Insight expects the decline in real GDP in the second quarter to be ‘only’ 2 percent to 3 percent. Subsequent quarters should show a steady improvement.”

After seeing their domestic profits fall by 16 percent last year, such “steady improvement,” however limited, would be a relief for corporations.

But that relief could still be a long time coming, as even industry powerhouses with global reach, such as Li & Fung, are predicting no growth this year as consumers pull back and price deflation takes hold.

Li & Fung on Wednesday said 2008 profits fell 21 percent to 2.42 billion Hong Kong dollars, or $311.1 million.

Standard & Poor’s said the company’s lower-than-anticipated income and cautious guidance would not impact its “A-minus” credit rating.

“Li & Fung margins could face further pressure in 2009 due to a changing business mix toward lower-margin discounters and outsourcing businesses, and sales growth that is likely in the low-single digits,” said S&P. “The pressure should ease partially due to cost savings from restructuring of operations in 2008, an increase in sales volume of acquired businesses after a time lag for integration, and likely more aggressive cost-cutting measures.” Shares of the firm slid 4.7 percent in Hong Kong to 18.58 Hong Kong dollars, or $2.40.

Christopher & Banks Corp. late Thursday reported that it expects to realize a net loss for continuing operations of 81 to 84 cents when it reports fourth-quarter results on April 9. The figure includes impairment, severance and other charges of 17 to 19 cents. In last year’s period, the Minneapolis-based women’s specialty store group had a net loss of 23 cents a diluted share, or 7 cents a share excluding charges. Capital expenditures will be cut to between $8 million and $9 million from $18 million in the just-concluded year.