Retail shares rally after beating Wall St views

By Martinne Geller

NEW YORK (Reuters) - Apparel and jewelry retailers surprised Wall Street with better-than-expected earnings on Thursday as cost-cutting measures and inventory controls offset the impact of the weak economy.

The Standard & Poor's Retail Index .RLX was up nearly 1 percent in afternoon trade, reversing course after four straight days of losses sparked by a record surge in oil prices that cost the retail index 6 percent.

Children's Place Retail Stores Inc (PLCE.O: Quote, Profile, Research, Stock Buzz), New York & Co Inc (NWY.N: Quote, Profile, Research, Stock Buzz) and Limited Brands Inc (LTD.N: Quote, Profile, Research, Stock Buzz), whose shares have all lost more than 30 percent over the last year, saw sizable market gains on Thursday, after reporting better-than-expected quarterly profit in a weak environment.

"Sales growth has been very weak and I suspect will continue to be weak because of all the problems associated with the consumer," said Carl Steidtmann, chief economist at Deloitte Research. "But retailers have actually done a pretty good job managing the things they can manage."

Children's Place, whose shares jumped as much as 18 percent to a nine-month high, said its operating margin improved 20 basis points in the first quarter and that its plan to turn around its business by updating merchandise, cutting costs, and exiting the Disney Store business was paying off.

New York & Co and Limited also cited better margins due to efforts to reduce inventory and manage costs. Keeping inventory levels slim, in line with lower consumer demand, means chains can avoid heavy discounting necessary to move unsold merchandise.

AnnTaylor Stores Corp (ANN.N: Quote, Profile, Research, Stock Buzz) has been working to improve its store environments and marketing messages. Its profit topped the average Wall Street estimate by a penny, but its stock fell after Chief Executive Kay Krill said on a conference call that consumers seemed to be needing broader promotions to make them spend.

That, coupled with a need to spend more on marketing to these cash-strapped consumers, led the apparel retailer to give a profit forecast for the current quarter that largely trailed Wall Street estimates. AnnTaylor reaffirmed its full-year outlook.