Recession Concerns Expected to Hit Comps

Wall Street had the jitters on Tuesday, but rebounded in afternoon trading.


Wall Street had the jitters on Tuesday, but rebounded in afternoon trading.

The Dow Jones Industrial Average sank more than 200 points earlier in the day after Merrill Lynch lowered its full-year earnings guidance for Citigroup. The Dow closed down 0.4 percent to 12,213.80, while the S&P Retail Index closed up 0.1 percent to 388.87. The broader S&P 500 grew 0.3 percent to end the day at 1,326.75.

Looking ahead, sluggish consumer spending due to recessionary fears are expected to squelch February same-store sales, which are scheduled for release on Thursday.

Analysts are generally predicting lackluster results across the board. The teen sector could hold up best as spring break fueled a demand for warm-weather apparel, resulting in an improvement in sales from January, said Thomas Filandro, analyst at Susquehanna Financial Group.

"We continue to view teen retail as a subsector that can show relative out-performance. In addition to a customer [who] is at least somewhat insulated from many of the current macro difficulties, we believe there are upbeat and new fashions in the mall, which can help drive customer traffic into stores," said Howard Tubin, analyst at RBC Capital Markets.

Aéropostale Inc. is expected to be the biggest winner in the sector as the retailer continues to improve merchandise assortment by adding more color and fashion items to its mix. Todd Slater, analyst at Lazard Capital Markets, forecasts an 8 percent jump at the company.

"Customers have responded positively to the brand's [Southern California]-inspired aesthetic and styles that evoke a Hollister feel, featuring bright colors, palm tree motifs and slimmer fits. Aéropostale's low price model could be stealing share from trading-down consumers," he said.

Aéropostale's success could pose a threat to Abercrombie & Fitch Co.'s Hollister division and American Eagle Outfitters Inc.

Slater predicts a 2 percent drop at Abercrombie and 3 percent decline at American Eagle.

Off-price retailers, such as TJX Cos. Inc., may also fair well in the economic downturn. Slater forecasts a 4 percent increase at the discounter.

"TJX continues to benefit from its flex-spending strategy, abundant supply chain and consumers trading down. Lean inventory levels should translate to further favorable product acquisition opportunities," he said.

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