Retail stocks see new calculus on investors' hopes

NEW YORK - Frugal shoppers are still fixated on discounters, not their upscale fashion and home furnishings competitors. Investors, however, are no longer so certain.

Mall-based purveyors like J.C. Penney and Macy's Inc. are now back on the hot list of investors, who have pushed prices up in recent months as they turn to the beaten-down shares in the belief they don't have much farther to fall and could be big winners in a rebound.

Still, shares of many of these mall-based merchants are still far below the levels they traded at since the recession started in late 2007. And analysts say their honeymoon may soon be over as investors grow impatient with the persistent sales slump and profit declines.

"Retailers have to show investors the money," said Ken Perkins, president of retail consulting firm Retail Metrics LLC. "At some point, they have to show (profit) growth."

Perkins estimated that the retail industry is expected to record an earnings decline of 11.6 percent for the second quarter compared with a year ago, marking the ninth consecutive quarter of earnings declines. Excluding Wal-Mart Stores Inc., that decrease would be almost 18 percent.

While the earnings declines have moderated in recent quarters, investors are concerned about the financial health of retailers and are hoping for some signs of a turnaround this back-to-school season.

Penney's share price has doubled to about $28 since early March and is up 45 percent since the beginning of the year. But the stock is still off 34 percent since late 2007. Macy's stock is up 62 percent since early March, trading around $12, and above the $10 it traded at the beginning of the year. But Macy's shares are still down almost 60 percent since late 2007.

Meanwhile, Williams-Sonoma Inc.'s stock has climbed 28 percent since March to about $12 per share, and has soared 57 percent since the beginning of the year. But the stock of the seller of upscale kitchenware is still less than half of what it traded at the start of the recession.

At the other end of the spectrum, discounter Wal-Mart Stores Inc., which has benefited from shoppers switching to low-price operators and has seen its share soar 20 percent last year, has seen its shares decline 13 percent to about $48 so far this year. Costco Wholesale Corp.'s shares have fallen 8 percent since the beginning of the year, to about $47 per share.

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