Ahead of the Bell: Retail may not recover soon

A Lazard Capital Markets analyst said Monday slow sales and mall traffic at apparel and footwear retailers will likely not recover until at least the second half of 2009.

Analyst Todd Slater said in a note to investors that "fiscal turmoil," rising unemployment, high costs and weaker economies overseas will keep earnings and sales at most retailers under pressure in the near term.

He said he now expects holiday sales to be up about 1 percent to 2 percent with fourth quarter same-store sales, or sales at stores open at least a year, to be flat.

He said sales trends may be down at specialty and department stores with grocery stores and discounters possibly seeing sales rise.

Slater said retailers' attempts to cut costs and lower inventory can help "mitigate sales shortfalls and rising costs, but not entirely."

The analyst downgraded retailer Target Corp. and VF Corp., which makes jeans, to "Hold" from "Buy".

Target, he said, may remain "vulnerable to shrinking discretionary budgets," particularly since 40 percent of its merchandise is focused on hard-hit categories like apparel, accessories and home products.

Slater said with the European economy slowing down, it may be time to "take some chips off the table" at VF "and wait for a more attractive entry point."

The analyst also lowered his price targets on seven retailers, including specialty retailer Limited Brands Inc., department store Saks Inc., teen retailer Quiksilver Inc. and Iconix Brand Group Inc., which owns the Candie's, Rampage and London Fog brands.

Slater also cut his earnings estimates for fiscal 2009 for 13 companies.