Chicago, IL, Apr. 1--Merrill Lynch lowered its investment rating on Wal-Mart Stores Inc. and other top retailers on Thursday amid concerns that sales growth would taper off in the second half of the year.
Merrill's retail analysts, who had been among the most bullish on the sector in recent quarters, recommended that investors sell into stock price strength and begin switching to an "underweight" position on the group.
Retailers have posted strong sales in recent months as customers redeemed holiday gift certificates and used fatter income tax refund checks to buy everything from clothing to electronics.
Wall Street analysts widely expect retailers to deliver strong first-quarter profits as well, but many have raised concerns that when tax refund checks are spent, sales will slow down in the second half of the year.
In its research note, Merrill's analysts cited several additional factors that could hurt retail stocks in the second half, including possible interest rate hikes after the U.S. presidential election, concerns over the removal of apparel quotas in China and elsewhere, and tough comparisons with a relatively strong 2003 holiday shopping season.
Merrill lowered its ratings on Dollar Tree Stores Inc., Family Dollar Stores Inc, Neiman Marcus Group, Target Corp. and Wal-Mart to "neutral" from "buy."
Aeropostale Inc., AnnTaylor Stores Corp., and Zale Corp. were also cut to "neutral" from "buy."
Dillard's Inc. was cut to "sell" from "neutral."
Merrill's analysts met with many of those companies at a Merrill-sponsored retailing conference last week.
