Tough Day for Retail as Oil Jitters Mount

Most stocks finished lower on concern that crude's volatility will compound consumers' problems.
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The majority of retail stocks closed Wednesday's session lower amid intensifying concern that high oil will lead to disappointment in Thursday's barrage of same-store sales results.

The

S&P 500

Retail Index closed trading down 2.8 points, or 0.7%, at 376.4. The

Retail Holders

(RTH) - Get Report

managed a slight gain of 0.02 points to close at 87.42.

"It makes sense that oil prices take money out the pocket of the consumers and that it can affect retail sales," said Joe Bonner, an analyst at Argus Research. "It goes in with a lot of the bad news we've had in the past few days."

Bonner was referring to Tuesday's

weaker-than-expected report on June consumer spending from the government and, of course, the higher gas and oil prices. All are fears that could cause investors to sell, mostly because of the belief that higher gas prices eat into consumers' disposable incomes.

Nymex crude futures dropped to $42.83 a barrel by late afternoon. Earlier Wednesday, futures had risen to an all-time high of $44.28 a barrel.

Three discounters reached new 52-week intraday lows:

Big Lots

(BLI)

,

99 Cents Only

(NDN)

and

Fred's

(FRED)

. Big Lots closed the day down 15 cents, or 1.3%, at $11.67, after earlier hitting a low of $11.55, while 99 Cents Only closed up 5 cents, or 0.4%, at $13.25; they touched a new low of $12.68. And Fred's finished 49 cents lower, or 2.8%, at $16.87; the stock reached a new low of $16.72 during the session.

Bonner also thinks investors are discounting

Thursday's expected same-store sales results, which Thomson First Call has forecast to rise 3.2% in aggregate.

Bonner noted

J.C. Penney's

(JCP) - Get Report

report from Monday that July same-store sales rose 8.1%. He called the increase "great for a department store," but also noted the company's easy comparison of positive 3.7% same-store sales in July 2003. (The company's results are boosted this year because the company now counts its previously owned Eckerd drugstore chain as a discontinued operation.)

"Still, that's amazing," said Bonner, of J.C. Penney's results. "Maybe

Thursday's reports on same-store sales won't be quite as soft as everyone is expecting."

Thomson First Call is expecting the department store sector to have an overall 0.1% drop in July same-store sales -- it's the only sector the research firm sees having a July decline. Department stores are expected to be pulled down with negative results from

Kohl's

(KSS) - Get Report

,

Sears

(S) - Get Report

and

May Department Stores

(MAY)

.

Nevertheless, Standard & Poor's noted in a Tuesday research note that the department store sector is enjoying its best year since 1999, which the credit rating agency said is a result of the stronger economy. The overall sector has also been boosted by strong results from the luxury retailers, it said.

Other notable Wednesday decliners were

Rite Aid

(RAD) - Get Report

,

Gap

(GPS) - Get Report

and

Coach

(COH)

.

Rite Aid shares ended the session down 17 cents, or 3.6%, at $4.60, while Gap lost 86 cents, or 3.9%, to $21.38. Coach declined $1.99, or 5%, to $38.12, and Hot Topic skidded 70 cents, or 4.3%, to $15.46.

Among the stocks bucking the trend were discounters

Wal-Mart

(WMT) - Get Report

and

Costco

(COST) - Get Report

.

Sharper Image

(SHRP)

and Kohl's also gained during the session.

Wal-Mart closed up 33 cents, or 0.6%, at $53.20 on reports it is talking with the Department of Justice to settle a federal investigation about whether the company knowingly hired illegal store cleaners. Wal-Mart has said it did not know its contractors were illegal immigrants. The company could pay around $10 million to settle the case, but it would likely not admit wrongdoing.

Costco finished up 44 cents, or 1%, at $41.15, and Sharper Image gained 15 cents, or 0.2%, to $25.49. Kohl's added 20 cents, or 0.4%, to $45.52.

Meanwhile, Ernst & Young put out a report Wednesday which predicted that consumer spending will indeed moderate in the second half of the year due to higher gas prices. Even the luxury retailers -- who were among the biggest beneficiaries of the recent consumer spending surge -- might see a slowdown in sales, it said.

The firm lowered its full-year 2004 retail sales growth outlook to 6% from 7%.

"Supply chain efficiencies are the key to the future prosperity of both retailers and consumer products companies," it said. "Large mega-retailers are demanding that their suppliers become more efficient in their operations and supply chains rather than increasing prices on their products."