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Downgrades Punish Gap, AnnTaylor Shares

Talk of a weak November sends AnnTaylor shares sliding 20%.



shares fell as much as 20% Tuesday after analysts warned that the women's apparel retailer may post disappointing holiday results. Shares in


(GPS) - Get Gap, Inc. Report

also fell on an analyst downgrade.

Dressing Down
AnnTaylor's Tuesday plunge

Janet Kloppenburg, analyst at

Robertson Stephens

, cut her rating on AnnTaylor to long-term attractive from buy, saying she believes November sales growth at stores open at least a year will be around 1% or 2%, not the 4% she had originally predicted. She also cut her earnings estimate for the fiscal fourth quarter, which ends in January, to 66 cents a share from 74 cents. She blamed increased markdowns due to the competitive retail environment.

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Jennifer Black also issued a note saying AnnTaylor had a tough November. She said same-store sales won't likely be affected, but that lower gross margins due to discounted merchandise will mean fourth-quarter earnings of about 74 cents a share, not the 76 cents she'd originally anticipated. She reiterated her strong buy rating on the stock. (Neither firm has done recent underwriting for AnnTaylor.)

Nasty Business
AnnTaylor shares' solid 2000

AnnTaylor had been one of the brighter spots in retailing lately, thanks to demand for suits and casual office wear. Still, slower sales or lower earnings would be yet another reminder that retailers face a tough holiday season. Consumers have reduced their spending, there's a vast array of stores competing for their dollars, and the result is likely to be a wave of discounting during the fourth quarter. That's great news for shoppers, but not so great for retailers. Even if retailers do rack up sales gains, the lower prices may lead to lower margins and, thus, lower profits.

The company's shares fell $6.44, or 17%, to $31.44 after previously falling as low as $30.25.

Meantime, another retailer was also suffering Tuesday. Gap shares fell about 5% after

Merrill Lynch

analyst Mark Friedman cut his rating on the stock from buy to accumulate. Friedman said the downgrade was because the stock had exceeded his $27 price target -- which it had also done previously this fall. (His firm hasn't done recent underwriting for Gap.)

Gap shares fell $1.38, or 5%, to $25.94 in recent trading.

Gap is expected to report November same-store sales after the close of trading Wednesday. AnnTaylor, like most other specialty retailers, is scheduled to report November same-store sales on Thursday.