By Andria Cheng
Limited Brands Inc. (LTD) and Abercrombie & Fitch Co. (ANF)
declined Monday after their stocks were downgraded, leading drops
in the retail sector.
The S&P retail index (RLX) fell 0.8% to 326.34.
Limited (LTD) dropped 6.5% to $9.98 after Citigroup cut its
rating to hold from buy. Analyst Kimberly Greenberger said the
stock is "appropriately valued" after a 36% surge since Feb.
20.
She said she remains positive on the retailer's long-term
positioning and said Victoria's Secret is "well positioned in
recessionary environment" given its core 20s customer who is more
resilient and intimate apparel's high emotional content and
relatively low prices relative to apparel items. She said the
lingerie chain, about 62% of the company's sales and 86% of its
profit in 2008, will "likely come out of this recession in a
stronger competitive position as it is one of the strongest and
most widely recognized brands in retail." Limited also owns Bath
& Body Works and La Senza chains.
Abercrombie (RLX) shares fell 2.8% to $24.08. The teen retailer,
known for its strategy not to discount in-season products, was cut
to market weight from overweight late Thursday by analyst Liz Dunn
at Thomas Weisel Partners. The analyst also cut her first-quarter
estimate to a loss of 25 cents a share from a profit of 7 cents a
share after the company posted a worse than expected 34% drop in
March same-store sales. "Management does not seem to understand
this fundamental shift in consumer purchase behavior towards less
conspicuous consumption," Dunn said. "The prices are too high and
out of touch with what consumers are willing to pay. The 2%
reduction in [average unit retail price] is impressive, but not if
the company isn't selling anything." The stock market was closed
Friday for Good Friday.
Among the gainers, Lululemon Athletica Inc. (LULU) shares jumped
6.1% to $11.51 after the retailer known for yoga-inspired clothing
was upgraded to outperform by William Blair & Co. on Monday.
Analyst Sharon Zackfia said there is an increased likelihood that
the company could exceed analysts' average 2009 profit estimate of
47 cents a share as sales trends have stabilized and its discount
levels are at their lowest since the end of 2007. The company also
could reap further rewards from the launch of its e-commerce site
this week, the analyst said.
-Andria Cheng; 415-439-6400; AskNewswires@dowjones.com