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financial

2007 a Tough Year for Retail Shares

As major stock indices such as the Dow Jones Industrial Average and the S&P 500 showed gains of 6.3 and 3.7, respectively, for 2007, the retail sector...

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After its shares posted solid gains in 2007 Abercrombie & Fitch is a top pick for the year ahead

After its shares posted solid gains in 2007, Abercrombie & Fitch is a top pick for the year ahead.

Photo By WWD Staff

As major stock indices such as the Dow Jones Industrial Average and the S&P 500 showed gains of 6.3 and 3.7, respectively, for 2007, the retail sector posted steep declines.

From the first day of trading in 2007 through the last day of the year, the S&P Retail Index was pummeled with a 18.5 percent loss to 409.94 from 502.97. The WWD Composite Stock Index, which includes retailers as well as suppliers, lost 19 percent for the year.

Of the 21 publicly traded retail stocks tracked by WWD with market capitalizations over $1 billion, 13 companies showed declines while 8 stocks gained. The top three gainers were Aéropostale, Tiffany & Co. and Urban Outfitters with increases of 24.2, 18.1 and 15 percent, respectively.

The leading decliners were Chico's FAS, Dillard's Inc. and J.C. Penney Co Inc. with decreases in stock valuation of 56.5, 45 and 43 percent, respectively, according to Yahoo Finance.

Other notable gainers included Gap Inc. with an 11.6 percent increase to $21.28 and Saks Inc., which closed the year up 15.3 percent to $20.76.

Most of the declining retail stocks showed losses of valuation between 15 and 30 percent, and a bulk of the companies set new 52-week lows during the second half of the year.

During the calendar fourth-quarter period, analysts said retail stocks were particularly hurt by sagging consumer confidence, speculation of a softer holiday selling season as well as concerns over inventory positions and eroded gross margin rates. With the holiday selling season winding down with gift card redemptions and scattered clearance sales, Wall Street has its sights set on spring.

Jennifer Black, analyst and president of Jennifer Black Associates, said in a research note this week that while "promotions before Christmas did help sell-throughs, and combined with the tighter inventory management; many retailers should be in a good inventory position" heading into 2008.

"On the flip side, the cost was margin and overall volume it would seem," Black said. "The remaining merchandise that did not sell readily will be exceedingly difficult to sell as time passes except possibly at a loss as far as we can tell. Cruise and transitional spring is showing up in the stores, and we believe many of the gift cards are being used for both sale and 'new' spring merchandise."
One of Black's top picks for retailers who can grab market share with trend-setting and creative merchandise is Abercrombie & Fitch. In 2007, the stock was a top performer, gaining 13.5 percent.
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