Retail exchange traded funds were down sharply Friday while shares of Aeropostale (NYSE: ARO) and Gap (NYSE: GPS) fell nearly 20% after the companies offered weak profit outlooks as they continue to get squeezed by higher input costs.
Retail HOLDRS (AMEX: RTH) and SPDR S&P Retail ETF (NYSEArca: XRT) were down nearly 2%.
Gap fell 18% following its quarterly results. The retailer cut its full-year profit forecast.
“Management expects product unit costs to be up about 20% in the back half of 2011, and that inflation will likely completely offset any price increases, more dramatically for the value brands such as Old Navy and Outlet,” said BMO Capital Markets in a report Friday. “This confirms our view that Gap lacks the pricing power to offset mounting input costs.”
Aeropostale shares also plunged about 18%. Brean Murray analysts in a note slashed their earnings estimates “after Aeropostale materially reduced any hope of a near-term turnaround by providing second-quarter earnings guidance materially below even our weak projections.” The company “continues to struggle with fashion misses, tough competition and bloated inventories; with no near-term relief in sight, the competitive environment remaining intense and costing pressures escalating, we see no reason to become more aggressive in Aeropostale.”
Yet Barnes & Noble (NYSE: BKS) was a bright spot in retail ETFs. The stock rallied 30% after Liberty Media Corp. made a $1 billion bid for the company.
PowerShares Dynamic Retail (NYSEArca: PMR)
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