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By Brian Sozzi

If a retailer wasn't selling bright-colored Nike (NYSE:NKE) sneakers or skimpy lingerie from Victoria's Secret (division of Limited Brands), it was a challenging third quarter, or so says the market. On average, specialty retail stocks shed an ugly 15% in the quarter on inventory concerns for the holiday (too high), resistance to higher markups, and clear desperation promotional tactics on key items (denim, t-shirts). Limited Brands (LTD), Hot Topic (NASDAQ:HOTT), and Carter's (NYSE:CRI) could be looked at as winners in the quarter with share prices that were flat. On the other hand, Pacific Sunwear (NASDAQ:PSUN) lost 54%, Aeropostale (NYSE:ARO) fell 38%, and New York & Company (NYSE:NWY) tumbled 39%.

Not helping to improve near-term sentiment on the sector is the insider selling that began in the middle stages of September, or toward the end of the third quarter, in top-rated names. To qualify for my list of kings of the hill, a company has to be loved by Wall Street analysts as measured by the number of buy ratings on the stock; above 50% is overly bullish. As I remarked last week upon reading another upbeat note on Abercrombie & Fitch (NYSE:ANF), despite the retailer's not so hidden aggressive promotions on redline merchandise and some full price wares in 3Q11, such overarching bullishness may be a contrarian signal to seek alternatives in the sector where the investment thesis is less well appreciated. Note that I include Lululemon (NASDAQ:LULU) on the bull list even though only 36% of analysts rate the stock a buy/overweight; the optimism underlying the hold calls is apparent in my opinion, it's just that the valuation is too rich to justify an upgrade.

The Bull List Heading South

Abercrombie & Fitch (ANF)

  • September 20 to September 23: 170,398 shares sold at a price range of $61.05-$62.60, including by sixty seven year old Abercrombie clothing wearer and CEO Mike Jeffries.
  • Stock relative outperformer in 3Q11: -10%
  • 60% of analysts rate the stock a buy/overweight

Ulta Salon (NASDAQ:ULTA)

  • September 13 to September 27: 62,769 shares sold at a price range of $66.56 to $70.91.
  • Stock relative outperformer in 3Q11: -3.07%
  • 60% of analysts rate the stock a buy/overweight

Bed, Bath & Beyond (NASDAQ:BBBY)

  • September 23 to September 26: 40,000 shares sold at a price range of $57.55 to $58.55.
  • Stock relative outperformer in 3Q11: -5.08%
  • 61% of analysts rate the stock a buy/overweight

Lululemon (LULU)

  • September 19 to September 27: 96,682 shares sold at a price range of $55.34 to $60.86.

o This selling is the most interesting, and worrying, of the group as Lululemon shares were having trouble gaining traction after the last earnings report.

  • Stock relatively in line performer in 3Q11: -15.07%
  • 36% of analysts rate the stock a buy/overweight
Source: Specialty Retail Did Not Have A Special Third Quarter