Sector Wrap: Retail shares decline on weak economy

PORTLAND, Ore. - Shares of major retailers sank Wednesday after a dismal report on retail sales and bleak comments on the economy sent the broader market plunging.

A government report showed that retail sales sank in September by 1.2 percent_another weak month for retailers — and Federal Reserve Chairman Ben Bernanke said it would take time for the country's economic health to mend.

Sales in some sectors, such as consumer electronics and home furnishings were weaker, while sporting goods and home centers fared slightly better, said Deutsche Bank-North America analyst Mike Baker. But companies such as Home Depot Inc. and Lowe's Companies Inc. are still on pace for their weakest quarter of the year.

Shares of Home Depot were down 71 cents, or more than 3 percent, to $20.36. Shares of Lowe's were down 29 cents to $18.79.

A deep consumer recession will likely continue through mid 2009, according to Credit Suisse analyst Gary Balter.

"There are just too many factors working against the consumer, including lower employment, tight credit access, excess leverage, declining home prices and inflationary pressures in staples, to assume that spending will rebound anytime soon," he wrote in a research note Wednesday

Still, Credit Suisse upgraded Home Depot and Lowe's from "Neutral" to "Outperform" as well as companies such as AutoZone Inc., Dicks Sporting Goods Inc. and other retailers that have been hit hard recently and are likely to continue to see their earnings drop, saying the shares reflect the bad news, but offer longer-term earnings growth.

Shares of AutoZone Inc. were down $3.81, or more than 3 percent, in afternoon trading to $104.69. Shares of Dicks Sporting Goods were down $1.12, or more than 6 percent, to $16.86 in afternoon trading.

Overall, Credit Suisse wrote, the weakness in the retail sector will likely continue into 2009 if not beyond. Analysts said it "will lead to consolidation in the sector longer term, which we view as the first plus for the leading players in this segment since the overexpansion began in the early 2000s. While there should be nothing surprising from the above, to date, the market has not separated the winners from the losers."

Some of the companies that may lose out, either because they have debt or lack the positioning to gain share, could include Sears Holding Corp. and Borders Group Inc., the analysts said.

Shares of Sears were down $1.08 to $62.39 and shares of Borders were down 48 cents, or 10 percent to $4.08 in afternoon trading Wednesday.

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