U.S. Stocks Retreat as Gap’s Earnings Forecast Misses Estimates

May 20, 2011, 9:58 AM EDT By Rita Nazareth

May 20 (Bloomberg) -- U.S. stocks fell, trimming the first weekly gain for the Standard & Poor’s 500 Index in May, as Gap Inc.’s profit forecast missed estimates and the euro weakened on expectations that the German economy will lose momentum.

Gap tumbled 18 percent after the largest U.S. apparel chain cut its full-year profit forecast by 22 percent as costs to make clothes rose faster than expected. Aeropostale Inc. slumped 15 percent as its profit projection trailed analysts’ estimates. Barnes & Noble Inc. soared 30 percent as the bookstore chain received a takeover offer from John Malone’s Liberty Media Corp.

The S&P 500 fell 0.2 percent to 1,340.48 at 9:32 a.m. in New York. The benchmark gauge for American equities has risen 0.2 percent this week. The Dow Jones Industrial Average declined 24.18 points, or 0.2 percent, to 12,581.14 today.

“There’s concern that we’re sliding backward a bit,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, which manages $1.5 billion. “Some retailers missed earnings estimates and cited higher costs. We got some weak figures, including housing yesterday. We may see more data to contradict all that. For now, because of the lack of catalysts, the market will not have a real trend.”

The S&P 500 rose 6.8 percent in 2011 through yesterday amid higher-than estimated earnings and government stimulus measures. Profits at S&P 500 companies that have reported results since April 11 have expanded 20 percent, with 72 percent topping analysts’ estimates for per-share earnings, according to data compiled by Bloomberg.

Euro Weakens

The euro weakened, snapping a four-day gain versus the dollar, as the Bundesbank said Germany’s economy will probably lose growth momentum. Germany’s 1.5 percent growth rate in the first quarter “considerably overstates the underlying economic momentum,” the Frankfurt-based Bundesbank said.

Gap tumbled 18 percent to $19.20. Expenses per unit will rise 20 percent in the second half, outweighing price increases, Gap said. The apparel industry is facing cost inflation for the first time in two decades because of surging cotton prices and increased pay for workers who make clothes in China and other parts of Asia. Retailers have said they plan to raise prices to counter the higher costs.

“While we acknowledge that costing pressure is impacting our business, we’re working hard to navigate this short-term macro challenge to our profitability in the current fiscal year,” Chairman and Chief Executive Officer Glenn Murphy said in the statement.

Aeropostale Slumps

Aeropostale slumped 15 percent to $18.07. The teen- clothing retailer forecast second-quarter profit of no more than 16 cents a share, below the average analyst estimate of 27 cents a share.

Barnes & Noble soared 30 percent to $18.37. Liberty Media offered $17 a share, a 20 percent premium to yesterday’s closing price, Barnes & Noble said in a statement. A board committee will evaluate the proposal, which is subject to an accord and to shareholder and regulatory approvals.

Barnes & Noble, facing increasing competition as more consumers buy electronic readers such as Amazon.com Inc.’s Kindle, hired Lazard Ltd. last year to explore a sale. Barnes & Noble makes the Nook e-reader, and some potential bidders balked at a purchase because of how long it may take the chain to generate more digital sales, two people said last month.

Salesforce.com Inc. advanced 7.2 percent to $145.60. The largest supplier of customer-management software forecast fiscal second-quarter sales and profit that topped estimates as the company added clients.

--Editors: Michael Regan, Joanna Ossinger

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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