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Sales down. Stocks up. What gives?

That was the question in the retail sector Thursday, as a host of mediocre same-store sales reports were met with, for a change, a resounding cheer from investors. That marks a sharp contrast to previous months, when any slip could chop a stock by 25% in a single day.


Redbook Same-Store Sales Index

rose 3.2% in October, pretty much the same as in the previous two months. Redbook called that "a disappointing turnout." Retail investors called it "a chance to buy with both hands." The

S&P Retail Index

rose 2%, dwarfing the less than 1% gain by the S&P Composite.

Cheap Date?

Gap, AnnTaylor rally retail stocks

Some specifics:



said same-store sales -- sales at stores open at least a year -- fell 3.4%, worse than expected. The stock rallied as much as 24% before closing up $5, or 17%, at $33.94.


(GPS) - Get Gap Inc. (The) Report

October same-store sales decline of 2% was expected, but the company also cut earnings guidance for the third quarter. The stock rose 11%, jumping $2.75 to $27.19.

And it wasn't only a specialty retail phenomenon, either.

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(WMT) - Get Walmart Inc. Report

same-store sales growth of 4.9% was at the lower end of its planned 4% to 6% range, but its shares rose $1.75, or 3.8%, to $48.44 anyway. (Some of these companies saw their shares do even better than winners like



, which blew away sales expectations and saw its stock rise $7.44, or 9.4%, to $86.75.)

"I'm not an economist, but my sense is that there's a significant rotation going into this group based on the expectations that the


will lower rates," says Todd Slater, a retail analyst with

Lazard Freres

. "It's in stark contrast with the fundamentals."

Cold, Hard Reality
Retail's long slide

Slater thinks there could still be some pain ahead for retailers -- or at the very least, a whole lot of uncertainty -- during the all-important holiday sales season. And early forecasts for 2001 don't look good, either. "We're not ready to call next year recessionary, but we think it will be pretty miserable," said


chief retail economist Carl Steidtmann at a recent Retail Marketing Society holiday forecast conference.

The Beatings

Still, a whole lot of people decided today that retailers -- most of whom, besides a few stars like Talbots, have had a miserable year -- have bottomed. They're certainly beaten down enough. Gap is almost 50% off its 52-week high. Wal-Mart has fallen 31% this year.

Merrill Lynch's

Dan Barry thinks things hit their worst in August and that retail stocks are now "in a relative bull market."

One hedge fund manager says the rise Thursday was only exacerbated by a massive panic among short-sellers, many of whom have done quite nicely this year by riding retailers down. They saw a move into retail and scrambled to cover their shorts, the hedge fund manager said. That buying to cover, in turn, boosted stocks even higher. "It's nothing that makes sense," the hedge fund manager said. "Christmas is still unknown."

Robert Olstein, with the

(OFALX) - Get Olstein All Cap Value C Report

Olstein Financial Alert fund, doesn't care much about how this holiday season, or even next year, shakes out. All he knows is that he started buying retailers like


(TJX) - Get TJX Companies Inc. (The) Report


Ross Stores

(ROST) - Get Ross Stores Inc. Report


J.C. Penney

(JCP) - Get J. C. Penney Company, Inc. Report

about six months ago, when they got really cheap. "There's this mania for growth, and investors let these other companies go down as if it's a fire sale," he says. "These are cyclical companies, and you value them as such."

Thursday, he sold some of his retail holdings (he won't say which). "I bought low and sold high," he says. "Isn't that what you're supposed to do?"

Those on the other side of today's retail rally are hoping that despite the dim fourth-quarter and uncertain 2001 outlooks, there are more highs ahead.