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NEW YORK (

TheStreet

) -- It's taking a lot for retailers to impress Wall Street, as evident in today's selloff.

While some companies like

Sears

(SHLD)

and

Buckle

(BKE) - Get Buckle, Inc. Report

are taking a hit due to pure bottom-line misses, for the most part, Wall Street's bearishness is due to signs of stress becoming evident in the sector.

Williams-Sonoma

(WSM) - Get Williams-Sonoma, Inc. Report

is a good example of some underlying fear. The home goods retailer easily topped profit and sales estimates and even raised its full-year outlook, but shares dropped 5.6% to $40.84 in afternoon trading.

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Investors are questioning the stability of its gross margins and whether its sales momentum can continue, as well as how much profitability is feasible from its shift to online.

"Williams-Sonoma reports a solid quarter, but the results, along with guidance, in our opinion, do not justify high valuation," Janney Capital Markets analyst David Strasser wrote in a note. "We believe merchandise margins have peaked and appear to be declining, sales growth is moderating and the company's guidance is realistic, not conservative, which means as we get through the year, we believe the Street estimates will be in-line."

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Retailers needed to put up pristine earnings reports, says Janney Capital Markets analyst Adrienne Tennant. This doesn't just mean earnings and revenue strength, but strong gross margins and clean inventory levels.

In-line is clearly no longer good enough, as seen in investors' reaction to results out of

Limited Brands

(LTD)

and

Hot Topic

.

Limited reported adjusted earnings of 40 cents a share on revenue of $2.22 billion, beating analysts' estimates by a penny on the bottom line. Looking ahead, the company, which owns Victoria's Secret and Bath & Body Works, sees second-quarter earnings between 38 cents and 43 cents a share and full-year results in the range of $2.25 to $2.45. Wall Street is looking for earnings of 43 cents and $2.25 a share, respectively.

Shares of Limited fell 3.4% to $40.99 in afternoon trading.

Cautious outlooks coming out of the sector are also not helping Wall Street's sentiment toward the space.

Children's Place

raised the low end of its full-year forecast, but its annual outlook and second-quarter forecast still miss Wall Street's expectations.

Ross Stores

(ROST) - Get Ross Stores, Inc. Report

reported better-than-expected quarterly profit, as shoppers flock to its off-price merchandise, but the company didn't raise its guidance enough to please investors.

The company now expects full-year earnings in the range of $5.16 to $5.31 a share, which is below consensus estimates of $5.36. Its current quarter profit forecast of $1.15 to $1.20 a share was also shy of analysts' outlook of $1.27.

GameStop's

(GME) - Get GameStop Corp. Class A Report

problems were much of the same. The video game retailer topped forecasts, but it issued an outlook below that of analysts.

For its second quarter, GameStop said it expects same-store sales to be flat to down 2%, with earnings expected to come in between 20 cents and 23 cents a share. Analysts were expecting earnings of 28 cents for the quarter.

The company also maintained its 2011 forecast for earnings in a range of $2.82 to $2.92 a share

Wall Street's jitters are not without merit. The retail sector is facing several headwinds heading into the second half of the year, specifically higher sourcing costs and mounting gasoline prices. As we head into the summer season, which is traditionally somewhat hum-drum for retailers, there is even more pressure.

As a result, Tennent believe stocks will remain muted until the end of the summer and start of the back-to-school season.

--Written by Jeanine Poggi in New York.

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Jeanine Poggi

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