NEW YORK — After a strong run by the bulls, the bears growled back last week, sending shares across the retail sector tumbling.
The WWD Composite Stock Index fell 2 percent for the week to 1172.04, while the broader S&P 500 dropped 0.6 percent to 1226.42. Last week was pretty much a case of “good news is bad news on Wall Street.”
Take July retail comps, which came out on Thursday. July is a clearance month. Retailers, who have become adept at keeping inventories in check, did such a great job of selling and managing goods in June that when July rolled around, there was nothing left to put on sale. Shoppers ended up staying home. Higher-than-normal temperatures also kept consumers indoors or at the beach. Still, markdown activity in the month was scarce. As a result, July same-store sales were much softer than June.
So what did Wall Street do? Instead of rewarding companies for controlling their inventories and maintaining margins (even at the cost of lower unit sales), investors fled the sector. The S&P Retail Index dropped 2.2 percent to 472.12 at the market close last Thursday.
And then there was the Labor Department report on Friday that said jobs and wages were growing stronger than expected. Sounds like good news. But what did investors do? They retreated once again. The concern was that inflation would be a by-product of robust wage and job growth.
It’s important to note that even though July’s sales were a mixed bag, overall, results were stronger than expected and better than last year. Dana Telsey’s Bear Stearns Weighted Monthly Retail Sales Index for July showed an increase of 3.8 percent, which compares with a 3.4 percent gain in the same month in 2004.
Deborah Weinswig, equity analyst at Citigroup Smith Barney, said in a research note that the broadline retailers on her radar showed mixed results, with the discounters and warehouse clubs posting comps that were either in line with or exceeded her estimates. However, comps for July were offset by “disappointing department store results.” Still, Weinswig reiterated an optimistic outlook for the back-to-school season.
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In a separate note by Weinswig, the analyst strongly feels that shares of Federated Department Stores Inc., which is in the process of acquiring May Department Stores Co., may get a boost with the potential sale of May Co.’s bridal business. “In our opinion, Federated is interested in divesting the [May Co.] Bridal Group shortly following the close of the [Federated-May] transaction,” which is expected to close in the third quarter.
Weinswig put a price tag on the bridal group of $1.51 billion, pretax. She said in her note that she believes “Federated could receive aftertax proceeds of $953.6 million for this potential transaction.” Her target price on the stock is $105, which is up from a prior target of $92.
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