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Retail stocks get hit hard
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May 3, 2000: 1:59 p.m. ET
Analyst downgrades, citing slower consumer spending, sink sector
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NEW YORK (CNNfn) - Investment firm Goldman Sachs cut a swath of downgrades throughout the retail sector Wednesday, out of concern that decreased consumer spending could affect such giants as Wal-Mart, Target and Kohl's.
At the same time, however, rival Donaldson Lufkin & Jenrette told investors to remain cautious, using the stock downgrades on growth retailers as a buying opportunity.
"We remain committed to retail. If you do not succeed, try, try again. Remember, macro calls do not work in retail. Give it an hour and buy," a DLJ research note stated.
Goldman Sachs analysts lowered their ratings on Wal-Mart (WMT: Research, Estimates), Target (TGT: Research, Estimates), Costco (COST: Research, Estimates) and Kohl's (KSS: Research, Estimates) to "market outperform" from "recommended for purchase." The company also cut its ratings on Macy's owner Federated Department Stores (FD: Research, Estimates), Neiman Marcus Group (NMG.A: Research, Estimates) and Lord & Taylor owner May Department Stores (MAY: Research, Estimates) to "market performer" from "market outperformer," the company said Wednesday.
 The report by Goldman Sachs helped send shares of No. 1 U.S. retailer Wal-Mart down 4-1/6 to 53-9/16 early Wednesday afternoon. Target's shares also fell 4/-15/16 to 63-15/16 on the news.
Goldman Sachs also downgraded Tiffany (TIF: Research, Estimates), Tuesday Morning, Polo Ralph Lauren, Abercrombie & Fitch, TJX and Ross Stores.
"Rapid deterioration of our leading indicators of real personal consumption expenditures suggests, however, that spending growth will slow in the second half even as cost pressure continues to build for many retailers," a company research note stated.
Analysts called the downgrades a macro view meaning that they still have confidence in the earnings power of the major retailers, but are concerned about rising prices.
Yet rival firm Donaldson Lufkin & Jenrette immediately refuted the report, telling investors to use the Goldman report as a buying opportunity as retailing stocks take a hit on the news.
The company urged investors to be highly selective in buying retail stocks as looming interest rate hikes spurred by rising prices could slow consumer spending.
DLJ recommended that investors buy retailing stocks with accelerating earnings such as Circuit City (CC: Research, Estimates), Best Buy (BBY: Research, Estimates) and Staples (SPLS: Research, Estimates).
Kurt Barnard, president of Barnard's Retail Trend Report, told CNNfn Wednesday, that he thinks the Goldman Sachs report is "dead wrong," adding that he expects consumer spending to remain strong throughout the remainder of this year and into the next. (529K WAV) or (529K AIFF)
He said some retailers expect to report a slump in April sales Thursday, attributable mainly to bad weather during the month, as opposed to any economic weakness.
"You know, Americans have jobs. Americans are earning money. They feel good about themselves. They feel secure in their ability to hold onto the job, and even if they lose the job they know they don't have to go too far to find another one," Barnard said. "So they feel a sense of security, of freedom to go out and spend and buy and do things for themselves, and that is why we are absolutely convinced that consumer spending will remain strong certainly throughout the balance of this year, and ... maybe into next year."
Barnard also predicted that home products retailers would lead the sector in the second half of the year. With new home construction on the rise and strong consumer confidence, he said, home product sales will continue to rise. 
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