Dow off 13, led by drop in retail stocks Sales figures cast doubt on recovery MARKETS


June 23, 1993|By Bloomberg Business News

NEW YORK -- Stocks lost ground yesterday after Kmart Corp. said its earnings would not meet investor expectations in the second quarter and the year.

The warning from the nation's second-largest retailer caused a rout in retail stocks and raised fresh doubts about the strength of the economic recovery.

"There may be a recovery, but the consumer is taking a vacation," said Bill Langevin, manager of institutional trading at Morgan Keegan. "There are some disappointments out there in the second quarter."

The Dow Jones industrial average fell 13.29 points, to close at 3,497.53. The decline was led by the stocks of Caterpillar Inc., International Paper Co. and Sears, Roebuck and Co. -- companies whose earnings mirror economic cycles.

Among broad market indexes, the Standard & Poor's 500 slipped 0.29, to 445.93, paced by drug, retail and pollution-control shares. The Nasdaq Combined Composite Index fell 1.97, to 686.77. Novell and Intel led the decline.

Declining and advancing common stocks were about even on the New York Stock Exchange. Trading was active, with about 260 million shares changing hands.

Kmart, the third-most-actively traded issue on the NYSE, fell $1.50, to $20.125, on volume of 5.1 million shares. The company said it expects its second-quarter earnings to be significantly below the 37 cents a share of a year ago. Sluggish sales of summer clothing and a loss at its warehouse-club chain were blamed. The news prompted a First Boston analyst to cut her investment rating of Kmart to "sell," from "hold."

Other retail stocks fell in response. Wal-Mart Stores Inc., the nation's biggest retailer, slipped 12.5 cents, to $24.875. Wal-Mart was the most active stock on the NYSE.

Sears fell $1, to $53.25, and Woolworth dropped 75 cents, to $27.625. Limited Inc. fell $1, to $21.875; Federated Department Stores lost $1, to $21.25; Toys 'R' Us fell 50 cents, to $36.25; J.C. Penney declined $1.375, to $44.25; and May Department Stores fell 87.5 cents, to $35.875. Dillard Department Stores eased 87.5 cents, to $36.375.

"People look at it from the standpoint that if competition is hurting Kmart, that means business is not strong enough to sustain all the companies," said Dan Marciano, senior vice president in equity trading at Dillon, Read & Co. "The fact that the business cycle is so fragile is enough to take the whole group down."

Kmart joins a roster of big companies, like Nike Inc. and Apple Computer Inc., that have alerted investors to likely shortfalls in sales or profits.

Warnings yesterday of weaker-than-expected profits also hurt WMX Technologies, the parent of Chemical Waste Management Inc., Continental Medical Systems Inc. and Outboard Marine Corp.

WMX Technologies' stock tumbled $2.375, to $33.125. Chemical Waste's stock slid $1.625, to $10.125. A Merill Lynch analyst reduced his investment ratings on WMX and Chemical Waste Management.

Outboard Marine, the world's largest maker of outboard motors, slid $1.50, to $16.875. Continental Medical, an operator of rehabilitation hospitals, plunged $3.375, to $8.375.

Novell declined $2.25, to $23.75, after Stan Weinstein, publisher of the Professional Tape Reader newsletter, advised investors to sell the stock. He said Novell's close below $26, its lowest close since September, meant that the stock was poised to fall farther.

Intel eased $1.25, to $55.50, after a Hancock Institutional analyst told investors to sell the stock because of competition in the 486 microprocessor market.

Home Federal Bancorp. of Missouri Inc. soared $6, to $22.50, after it said it was exploring a sale of the company.

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