Power Woes Prompt Retailer Downgrades

The state’s power crisis is driving some Wall Street analysts to sour on retailers dependent on California consumers.

Merrill Lynch & Co. analyst Daniel Barry, in a report Tuesday, warned that Costco Wholesale might not be the last retailer to cut earnings projections because of power-related woes.

“As customer spending slows as a result of rising utility prices, we expect demand to weaken, which may result in lower sales” for California retailers, Barry said.

Costco on Monday trimmed its earnings outlook for the rest of its fiscal year, citing the slowing economy and rising energy costs. A third of Costco’s 354 warehouse-style stores are in California.

Tuesday, Barry downgraded Costco to “near-term accumulate” from “buy.” The shares (ticker symbol: COST) slumped $1.96 to $34.28 on Nasdaq.

Also downgraded by Barry was discounter 99 Cents Only Stores, which has nearly all of its 106 stores in California. Barry cut the stock to “near-term accumulate” from “buy.” The shares (NDN) slid $2.34 to $27.16 on the New York Stock Exchange.

Ross Stores Inc., a discount retail clothing chain that has 42% of its stores in California, also could be hurt by higher energy costs, Richard Baum, a Credit Suisse First Boston analyst, said in a report.

Ross shares (ROST) fell 30 cents to $20.91 on Nasdaq.

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Sudden Discount

Shares of 99 Cents Only Stores slumped nearly 8% on Tuesday after Merrill Lynch downgraded the stock, citing worries about California’s economy. The stock had been rallying in recent months after diving last fall following a disappointing earnings report.

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99 Cents Only Stores, weekly closes and latest on the NYSE

Tuesday: $27.16, down $2.34

Source: Bloomberg News