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Retail-sector stocks rose Friday, a day after retailers reported their best monthly sales in over a year, with Macy's Inc. (M) leading the gainers after analysts at JPMorgan upgraded the department-store operator to overweight from neutral.
The S&P Retail Index, outpacing the broader equities market, rose 1.2% to 393.26 in early trading.
Investors largely shrugged off Labor Department data showing that the U.S. unemployment rate climbed a more-than-expected 10.2% in October. Retail was one of the sectors that saw large job losses.
Macy's shares climbed 3.5% to $18.65 as JPMorgan analyst Charles Grom raised his rating after the company posted back-to-back improvement in its monthly same-store sales on a two-year stacked basis.
He said there's significant profit upside, especially in the fourth quarter. Macy's also should benefit from its "My Macy's" initiative and improvement in both the upscale Bloomingdale's chain and its flagship namesake store in Manhattan, the analyst said.
Grom raised his third-quarter profit forecast to a profit of 1 cent a share from a previous estimate of loss of 5 cents a share. He also raised his fourth-quarter profit estimate by 9 cents a share, to $1.41 a share.
U.S. retailers' monthly sales results Thursday showed an October gain of 2.2%, their best month since April, with discounters and department stores leading better-than-expected gains while teen retailers struggled.
Also gaining, shares of Home Depot Inc. (HD) and rival Lowe's Cos. (LOW) were up 1.4% and 2.2%, respectively.
Analysts expect the home-improvement retailers may post upside surprises when they report results later this month as signs of an improved housing market abound. Rochdale Securities raised its profit estimates on both stocks.
Starbucks Brews Up Gains
Shares of Starbucks Corp. (SBUX) rose 4.5% to $20.56, gaining after the coffee house giant's fourth-quarter profit jumped more than expected and as management raised its outlook for the year.
On the downside, Bebe Stores Inc. (BEBE) fell 8.1% to $6.
The women's clothing retailer's first-quarter loss widened more than analysts had estimated, and Bebe's second-quarter forecast fell short of projections. Brean Murray Carret downgraded the stock to buy from hold, with analyst Eric Beder noting that the company's management is still putting together its team, which has slowed a turnaround strategy for Bebe.
"While this is a natural progression, it has become somewhat frustrating after years of negative same-store sales and almost a year of management turnover," Beder said.
Shares of Borders Group Inc. (BGP) fell 2.8% to $2.05 as the bookstore operator said it's closing about 200 of its mall-based Waldenbooks in January, leaving about 130 mall-based locations open. About 1,500 positions, most of which are part-time jobs, will be cut, the company said.
Shares of Fred's Inc. (FRED) fell 7% to $10.29 after the company was downgraded to underperform from neutral by Wedbush Morgan Securities.
Dillard's Inc. (DDS) fell 1.4% to $13.12. Late Thursday, the rating on the department-store operator got cut to sell from hold by Standard & Poor's equity analysts on concern the department-store operator may be losing customers to competitors as October sales significantly underperformed its peers.
-Andria Cheng; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
11-06-09 1059ET
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