By Caroline Valetkevitch
NEW YORK (Reuters) - Investors heavily discounted U.S. retailers on Wednesday after a series of disappointments in the sector, including a weak forecast from Macy's Inc (N:M).
Macy's stock dropped as much as 14 percent to $31.82 (22 pounds), the lowest level since December 2011, after the company reported a much bigger-than-expected drop in quarterly sales and slashed its full-year forecast.
The stock helped lead a 1.5 percent decline in the S&P 500 retail index <.SPXRT>.
The selling spread quickly in the sector as worries about the outlook for brick-and-mortar retailers mounted. Shares of Fossil Group (O:FOSL) fell 28.1 percent to $28.83, also following results and a weaker-than-expected forecast.
Nordstrom (N:JWN) was down 6.4 percent at $45.72, Tiffany & Co (N:TIF) fell 5.5 percent to $66.82 and Target Corp (N:TGT) shed 4.9 percent to $76.11.
In another blow, Office Depot Inc (O:ODP) and Staples Inc (O:SPLS) shares sank after a federal judge late Tuesday granted a request to stop their planned merger because of antitrust concerns.
The retail industry has suffered from competition from Amazon.com (O:AMZN) and other online retailers as consumers' spending patterns have changed.
"You heard one after another during the earnings season talk about the difficulties - they're cutting, they're closing stores," said Quincy Krosby, market strategist at Prudential Financial (LON:PRU) in Newark, New Jersey. "The fact of the matter is there have been questions about retail spending, and valuations overall in consumer discretionary were rich."
Last week, teen apparel chain Aeropostale Inc
The retail weakness further dampens the outlook for the consumer discretionary sector (SPLRCD), which after putting in the best performance of any Standard & Poor's 500 sector last year is up just 1.2 percent but still among the most expensive sectors relative to earnings.
Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, said retail stores may need to build up their online businesses or find a niche in order to boost sales.
Macy's is trying to make money from its unproductive real estate.
Without new strategies from companies, shares may need to sell off more to make prices attractive again to investors, he said.
Macy's, which is down 8.5 percent for the year so far, trades at 9.7 times its forward earnings estimates, while Nordstrom Inc (N:JWN), down 8.2 percent for the year, trades at 14.9 times forward earnings, Thomson Reuters data show.
By comparison, the S&P 500 (SPX) is valued at about 16.7 times the forward earnings of its components.