Wall St. Sees Dreary Spring for Retail Stocks
A major brokerage on Monday issued a downbeat view of retail stocks as two key companies reported disappointing sales.
Most large retail stocks fell after Merrill Lynch & Co. predicted the end of the sector’s bull market.
Wal-Mart Stores Inc. and Federated Department Stores Inc. on Monday reported weaker-than-expected sales for the last week of March.
Several analysts predicted poor industry sales for both March and April, a result of bad weather in much of the country in March and a calendar shift for April, which compares April sales this year with the period that a year ago included Easter buying.
Same-store sales at Wal-Mart and its Sam’s Club unit were below forecasts in the week ended Friday, Wal-Mart said in a recorded message to investors.
Federated, parent of Macy’s, Bloomingdale’s and Lazarus, said on a recorded call that March sales were below its forecast of unchanged to a decrease of 1% because same-store sales in the week ended Saturday missed projections.
Wal-Mart fell $1.74 to $59.56, and Federated lost $1.54 to $39.31, both on the New York Stock Exchange. The Standard & Poor’s retail index lost 2%, its biggest one-day drop in about a month.
Merrill Lynch’s advice to investors to reduce holdings of retail stocks came even as the brokerage has gotten more bullish on the economic recovery.
The problem for retail, Merrill said, is that apart from a few firms, such as Kohl’s Corp., and turnaround stories, such as J.C. Penney Co., an economic turnaround probably means that profits in the industrial sector, which have lagged in the last two years, soon will outpace those of retailers.
Rather than leading the market, Merrill analysts said, retail stocks could just match the slight gains predicted for the rest of the market. The brokerage cut its rating on the retail industry to “average weight” from “overweight.”
“The party’s over; go home,” said Angela Kohler, portfolio manager at Federated Investment Management, which has about $180 billion in assets. “There are probably better places to park your money than retail.”
The S&P; retail stocks index, which through last week had soared 43% from its Sept. 21 low, now trades for about 27 times estimated 2002 earnings per share, compared with about 22 times for the S&P; 500. That made it just a matter of time before the shine began to wear off retail stocks, analysts said.
Merrill’s chief economist, Bruce Steinberg, said the U.S. economy is exceeding “even our optimistic expectations.” He expects gross domestic product to rise 3.2% this year, about half a percentage point higher than his previous forecast.
Bloomberg News was used in compiling this report.
