Retailers' biggest markdowns: Their stocks?

A week ago, anyone who owned retail stocks must have been figuring that the severely depressed share prices already reflected a worst-case scenario for this holiday shopping season.

But when the government on Friday reported that U.S. retail sales sank 2.8% in October -- the largest one-month drop on record -- the bottom fell out of the stocks once again.

Today, many of them are still falling.

Sears Holdings Corp., the owner of the Sears and K mart chains, was down $2.02, or 5.3%, to $36.25 just before noon PST, the lowest since March 2004. The stock had dived 14% on Friday. Nordstrom Inc. was off 52 cents to $11.22 around noon, a five-year low. Macy’s Inc. was near a 16-year low, off 26 cents to $7.26.

And the market now seems to be pricing many smaller retailers for oblivion -- or at least, for oblivion as publicly traded firms.

Women’s clothing chain Chico’s FAS Inc. fell as low as $1.82 a share early today. Pacific Sunwear of California Inc., which dived 61% last week, is trading around $1.30. La Canada-based Sport Chalet Inc. lost 47% last week and now trades for about 78 cents a share -- valuing the entire business at just $12 million, or a mere 3% of annual sales.

As with much of the rest of the market, investors might as well just throw up their hands if they’re trying to evaluate retail stocks based on the fundamentals of sales and earnings.

Of 17 analysts who follow Nordstrom, earnings estimates for the fiscal year ending January 2010 range from a low of $1.16 a share to a high of $2.30.  So Wall Street's best guessers are miles apart.

As for the holiday shopping season, expectations may only go lower. Note Target Corp.'s gloomy forecast here.

"Not only are retailers battling deteriorating economic fundamentals, they are also being dealt a stealthy blow by getting four less shopping days between Thanksgiving and Christmas this year," wrote Ellen Beeson Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ in New York, in a report last week.

"Following Thanksgiving, consumers have just 27 shopping days before Christmas this year, while last year they had 31. Studies have shown that consumers spend more when given more time to shop before Christmas," she wrote.

Michael Darda, economist at MKM Partners in Greenwich, Conn., says a U.S. consumer recovery "is probably a long way off," given surging unemployment, limited access to credit and the negative wealth effect from falling home values and sinking investment portfolios.

All of which, you might have thought, already was priced into retail stocks a week ago.

Apparently not.

Photo credit: Mario Tama / Getty Images

Comments

[mr.bilko]

Excluding automobiles, the retail sales decline was 2.2%. Excluding automobiles and gasoline, the retail sales decline was 0.5% ( http://www.forbes.com/afxnewslimited/feeds/afx/2008/11/14/afx5694601.html ). 1.7 of the 2.8% decline was due to cheaper gas. Falling gas prices may actually help retail this xmas. November should be dismal, but falling gas prices could lead to an okay December for retail as money saved at the pump finds itself circulating into stores. Bear market for retail stocks through January 2009. Dow down to/below 7500 during Jan'09 as retail reports earnings for holiday season of 2008. Cheaper gas allows for a less painful recession and a quicker recovery.