Analyst initiates mall retailers with positive rating

Despite widespread weakness in the mall-based retail sector amid a difficult economy, one analyst said the worst may be in the past.

Stephens Inc. analyst Anne Poole initiated coverage on the sector, which includes missy _ or women's _ and teen apparel retailers, with an "Overweight" rating.

In a note to investors on Tuesday, Stephens acknowledged that specialty apparel retail has been "out of favor" for the past five quarters, and many retail stocks have lost more than half their value.

However, that may be a sign improvement is near, Poole said.

"Historically, retail stocks have been a leading indicator of a weakening economy, and one of the first sectors to bounce back," Poole wrote.

While there are not yet signs of a recovery, most retail stocks already reflect a weak environment, and "we do not believe a full economic recovery will be needed to get the stocks moving again," she wrote.

The weak environment is also causing companies to manage business more prudently, leading to greater stability during the second half of the year, according to Poole.

"While it took the retailers a while to understand the severity of the downturn, we believe the companies have been working diligently to get their businesses back on track," Poole wrote.

Retailers will likely emerge from the downturn with "healthier business models better positioned for long-term sustainable growth, Poole wrote.

Poole initiated Chico's Fas Inc., AnnTaylor Stores Inc., American Eagle Outfitters Inc. with "Overweight" ratings.

Chico's shares rose 47 cents, or 7.2 percent, to $7 in afternoon trading. AnnTaylor shares fell 9 cents to $26.09. American Eagle Outfitters shares rose 52 cents, or 2.9 percent, to $18.55.

Meanwhile, she initiated J.C. Crew Group Inc., Coldwater Creek Inc., Bebe Stores Inc. and Aeropostale Inc. with "Equal-Weight" ratings.

J.C. Crew shares rose 20 cents to $46.04; Coldwater Creek shares fell 2 cents to $5.34; Bebe Stores Inc. rose 36 cents to $10.23; and Aeropostale shares rose 94 cents, or 2.9 percent, to $32.52.