The New Year's Blahs: Retail Shares Decline On Downbeat Outlook

It's a new year, but the same old stock market story.

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It's a new year, but the same old stock market story.

On 2008's first day of trading, retail shares fell sharply as oil prices reached $100 a barrel for the first time ever. And, after 12 months of steep erosion in the value of retail shares, this year is looking like it will be even more of an uphill battle.

But, as always, there are expected to be some standouts. Several analysts see companies such as Nike Inc. and Polo Ralph Lauren as stocks that will do well this year, and at least one retail consultant says Wal-Mart Stores is in the midst of a massive turnaround, especially since macroeconomic factors appear to be heading in the discounter's direction.

On Wednesday, though, stocks were mired in red. The S&P Retail Index dropped 2.1 percent to 401.39, while the Dow Jones Industrial Average shed 1.7 percent, to 13,043.96, and the broader S&P 500 slid 1.4 percent, ending the day at 1,447.16.

Analysts cited concerns over higher fuel prices as the main catalyst for the day's retreat. Concerns of rising fuel and energy costs held back retail shares during the second half of 2007, pushing many shares to new, 52-week lows. Analysts are worried that higher energy costs will eat even more into consumer spending after a disappointing holiday shopping season. Consumers have been the engine of the U.S. economy for the past decade, and any indication of a slowdown in consumer spending would have grave consequences for growth.

Meanwhile, a tally of the 175 retail, apparel and footwear stocks tracked by WWD showed 132 decliners and 43 gainers for 2007. The data were compiled by Data Network from Dec. 31, 2006, through the last day of trading in 2007. The bulk of the declining shares saw losses of between 15 and 40 percent. Still, there were some big winners last year, most notably J. Crew Group and Aéropostale.

For the near term, analysts see retail and apparel stocks facing some challenging times. For apparel stocks, a changing retail environment likely will force many vendors to rethink their strategies this year.

"The majority of companies in our universe [of apparel and footwear vendors] have issued a cautious outlook on the remainder of 2007 and first half of 2008, driven by concerns over the housing market, gas prices and weaker U.S. consumer spending," said Kate McShane, analyst at Citi Investment Research, in her outlook report.
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