Pacific Sunwear’s Stock Slumps 10.6%

Trying to sell spring clothes is tough when cold weather still embraces half the country, and industry analysts cited the problem Wednesday in downgrading stocks of several apparel companies and cutting earnings forecasts.

Wall Street responded by knocking down retail stocks in general, hitting Pacific Sunwear of California Inc. hardest with a 10.6% drop in price--even though analysts didn’t change recommendations or forecasts on it.

The Anaheim company’s stock, which has surged in recent months, lost $3.44 a share to close at $29 on Nasdaq. But it wasn’t alone as the entire sector became one of the main targets of the across-the-board sell-off.

March and September are the most weather-sensitive months for retailers, said analyst Eliot Lawrence of Jefferies & Co.

“We are in the middle of the Easter season, and the temperature has been less than cooperative so far,” he said. Consumer confidence and employment levels are not making the picture any prettier.

Other big losers were Abercrombie & Fitch Co., which shed $2.58, or 7.2%, to close at $33.17; American Eagle Outfitters Inc., which fell $2.13, or 6.8%, to $29 a share; and Ann Taylor Stores Corp., down $1.75, or 6.3%, to $26 a share. A 94-cent drop in Gymboree Corp. shares left it at $11 for the day, down 7.9%.

Other companies that faltered had smaller drops. Stock of Wet Seal Inc. in Foothill Ranch lost 84 cents, or 3%, to close at $27 a share.

“March sales trends have continued to disappoint, reflecting the lack of a broad-based fashion trend and cool weather,” Merrill Lynch’s Mark Friedman noted Wednesday. He reduced his estimates for the current quarter on seven specialty retailers on doubts the group will be able to catch up in April.

“Despite recent cuts, consumer spending has not been helped by an uncertain economic climate,” he said. “Should April not realize a healthy acceleration, we could see further pressure on second-quarter estimates as markdown activity increases.”

Jeffrey Klinefelter of US Bancorp focused his bearish comments on American Eagle Outfitters, which, he said, is facing increasing competition and the costs of a recent acquisition. He cut his rating on the stock to “buy” from “strong buy.”

Friedman maintained his “buy” rating for the company as well as his earnings expectations. But he cut forecasts for Ann Taylor, Gymboree, Children’s Place Retail Stores Inc., Intimate Brands Inc., Limited Inc., Tiffany & Co. and TJX Cos., based on the March weather and higher markdowns.

“The soft start to spring and the possibility of cooler weather in April could result in additional markdown pressure later in the season,” Friedman said in a report.

The Standard & Poor’s Small-Cap Specialty Retail Index fell 7.76, or 6.5%, to 111.83.

But it may still be too soon to bail out on retail stocks, Lawrence said. Retail sales have been so erratic in this faltering beginning of spring, he pointed out, that it is difficult to anticipate how the quarter will end.

“The last week of February and the first of March have been terrible,” he said. “Then things got a little better.”

That’s why Lawrence doesn’t predict a slew of estimate cuts over the next few days.

“Analysts hesitate to cut numbers, because retailers might still have a good week of Easter sales in March, and things could turn around very quickly,” he said.

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Dow Jones Newswires and Bloomberg News were used in compiling this report.