Ahead of the Bell: Specialty retailers

AP News
Posted: Jan 04, 2010 9:34 AM

The new year could be brighter for luxury retailers, as improving stock markets and economic conditions pave the way for a potential recovery, an analyst said Monday.

While shoppers remained budget conscious in 2009 and flocked to discount retailers, Randal Konik of Jefferies & Co. said luxury retailers like Tiffany & Co. and Ulta Salon, Cosmetics & Fragrance Inc. will be among those that could see improved business in 2010.

The analyst upgraded both Tiffany and Ulta to "Buy" from "Hold."

Konik also said in a client note that increased cost pressures will push down operating leverage during the second half of the year. Operating leverage is a measurement of the degree to which a company relies on a combination of fixed and variable costs.

That would leave retailers that rely on sales growth to look for other ways achieve higher earnings in order to prop up their business.

The analyst cut American Eagle Outfitters Inc., Chico's FAS Inc. and Gap Inc. to "Hold" from "Buy" and reduced AnnTaylor Stores Corp., Ross Stores Inc. and TJX Cos. to "Underperform" from "Hold."