Dec. 17 (Bloomberg) -- Consumer confidence is falling, the odds of a recession have risen, analysts predict the worst holiday shopping since 2002 -- and retail-industry executives are buying their companies' shares like never before.

Limited Brands Inc. Chief Executive Officer Leslie Wexner and eight other executives bought a record amount of stock last month after prices fell to a four-year low. Dillard's Inc. director Warren Stephens made the biggest insider purchase ever as shares of the Little Rock, Arkansas-based department store chain headed for the steepest decline since at least 1980.

Cambiar Investors LLC, Royce & Associates LLC and Becker Capital Management Inc. say insider buying foreshadows a rebound. The last four times executives added to their holdings, the Standard & Poor's Supercomposite Retailing Index rose an average 9.9 percent in the next three months, topping a 6.2 percent average rise in the S&P 500 Index. Retail company officials increased their investments by $346.4 million since the start of November, according to data compiled by Bloomberg and InsiderScore.com.

The purchases are a ``vote of confidence,'' said Maria Mendelsberg, 39, a principal at Denver-based Cambiar, which oversees about $8.8 billion, including 6.35 million Limited shares as of September. ``It signals that people who know what's going on at the company think the stock is extremely attractive.''

Most Bullish

Retail executives and directors snapped up shares after industry profit fell in the third quarter and analysts predicted another drop this quarter. The National Retail Federation, a Washington-based industry group, forecast a 4 percent increase in holiday sales this year, the smallest since 2002.

``Our insider sentiment reading in retail is the most bullish we've seen,'' said Ben Silverman, 32, the Princeton, New Jersey-based director of research at InsiderScore, which tracks insider transactions for more than 350 institutional investors. ``The signal that we're seeing from retail insiders is that we're not on the brink of that recession and maybe they really believe that spending by consumers will pick up.''

The S&P Retailing index is headed for its biggest decline in five years after higher gasoline costs and the worst housing market in 16 years pushed the Reuters/University of Michigan consumer sentiment index to the lowest level since Hurricane Katrina. Retail sales topped economists' forecasts in November, rising 1.2 percent, the Commerce Department said.

Share Gains

Today, the S&P Retailing index fell 0.6 percent, versus a 1.5 percent slump in the S&P 500. Limited gained 1.1 percent, while Dillard's added 0.5 percent.

Investors who purchased shares after an increase in insider buying have sometimes lost money. Stock acquisitions by officers at financial companies in the S&P 500 totaled $122.1 million this year through last month, the most among 10 industries, according to data compiled by Bloomberg and the Washington Service, a Bethesda, Maryland-based research firm. Financial stocks have been the worst performers in the S&P 500 in 2007, falling 21 percent as a group.

Retail shares may drop further if the U.S. economy falls into a recession. Economists at New York-based Morgan Stanley and Merrill Lynch & Co., the second- and third-biggest U.S. securities firms by market value, said this month that slower consumer spending and lending by banks may cause gross domestic product to shrink next year.

Recession Risk

Economists expecting the U.S. economy to contract in 2008 rose to nine last month from five in September, a survey by the National Association for Business Economics in Washington showed.

Retailers are facing ``the perfect storm of bad news,'' including declining home values and higher gasoline prices, said Erick Maronak, 41, a New York-based chief investment officer at Victory Capital Management, which oversees $64 billion. Insider buying ``tells me that they think things are about as bad as they can get and are bound to get better. It doesn't mean they will.''

The 94-member S&P Retailing index has dropped 18 percent this year and fell last week to the cheapest relative to its members' earnings since Bloomberg began tracking the weekly data in December 2001.

``Even if it's not that great a Christmas, the stocks have been beaten up enough that insiders are saying they are values,'' said Michael Johanns, 35, an analyst at Reno, Nevada-based Muzea Insider Consulting Services LLC, which advises hedge funds tracking executive trading patterns.

Retail executives typically make well-timed purchases, according to Silverman of InsiderScore. Insider buying surged in July 2006 after concerns that higher borrowing costs would drag down global economic growth sent the S&P retailing index to the lowest in a year. The gauge rallied 17 percent during the next three months, topping a 7.9 percent gain in the S&P 500.

Wexner's Purchases

Retailers' shares also outperformed the benchmark when executives added to their holdings in August 2004, based on InsiderScore and Bloomberg data. The stocks advanced, though less than the S&P 500, when insider buying outpaced selling in October 2004 and October 2005.

``They tend to buy when the stocks drop, which is good because it means they are good at calling bottoms,'' said Silverman. ``They time their buys well.''

Limited's Wexner, 70, who opened the company's first store 44 years ago in Columbus, Ohio, bought 1 million shares from Nov. 23 to Dec. 7 at prices ranging from $17.74 to $20.87, according to filings with the U.S. Securities and Exchange Commission. The open market purchases boosted Wexner's stake to 50.6 million shares and were his largest, according to data compiled by the Washington Service since 1987.

`Undervalued' Shares

Eight other officers at Columbus-based Limited -- including Sharen Turney, 51, president of the Victoria's Secret lingerie division, and Allan Tessler, 71, a Limited board member since 1987 and chairman of New York-based mutual fund company Epoch Investment Partners -- bought 135,064 shares for about $2.5 million. The purchases were made the day after Thanksgiving, called Black Friday because it's considered the day retailers traditionally turned a profit for the year.

A Limited spokeswoman said Wexner and Turney declined to comment. A call to Tessler at Epoch wasn't returned.

Limited, which sells products under six brand names at more than 2,900 retail stores, has dropped 35 percent this year in New York Stock Exchange composite trading. It fell to the lowest level in almost four years on Nov. 20 after cutting its fourth- quarter profit forecast because of a ``challenging overall retail environment.''

``The shares are undervalued,'' said Pat Becker Jr., 42, who helps manage $2.5 billion, including 1.2 million Limited shares as of September, at Becker Capital Management in Portland, Oregon. ``Not only do we think that, but management thinks that. That gives us confidence that our thesis is correct.''

Dillard's Director

Dillard's director Stephens bought 100,000 shares of the apparel and home furnishings retailer for $17.52 each on Nov. 27, bringing his stake to 111,536 shares. The purchase was the first by Stephens, the 50-year-old CEO and owner of Little Rock-based investment bank Stephens Inc., since he joined the Dillard's board in 2002 and was the biggest open market purchase by any Dillard's insider, according to Washington Service data.

Stephens declined to comment.

The stock, which has the lowest average rating in the S&P 500 by analysts tracked by Bloomberg, has plunged 44 percent in 2007. Last month, it traded at the cheapest versus book value, or assets minus liabilities, since July 2003 after Dillard's said revenue slumped because of lower sales of children's clothing.

Free Analysis

Foot Locker Inc. CEO Matthew Serra, 63, snapped up a record number of shares in the New York-based operator of retail shoe stores last month after the stock traded at the cheapest versus net assets since 2000. Serra, named CEO in 2001, bought 100,000 shares for $1.27 million on Nov. 29, boosting his stake in the company to 683,107 shares.

The purchase was the biggest by any Foot Locker officer, according to Washington Service data. Serra didn't respond to requests for comment.

Chico's FAS Inc. CEO Scott Edmonds, 50, acquired 100,000 shares for $1.02 million on Dec. 7, bringing his stake in the Fort Myers, Florida-based seller of women's clothes to 291,131 shares. He bought the stock a day after it dropped to a four-year low on a fourth-quarter earnings forecast that was below analysts' estimates.

Chico's, which ended last week at $9.84, trades at 13.9 times analysts' 71-cents-per-share average estimate for operating profit next year. That's 59 percent below its average reported price-earnings ratio over the past five years, Bloomberg data show. Chico's spokesman F. Michael Smith said share purchases by Edmonds and other company executives ``show their confidence in the overall long-term growth of our company.''

Executive buying is ``the best inside information you could possibly have,'' said Boniface ``Buzz'' Zaino, 64, a New York- based senior portfolio manager at Royce & Associates, which oversees about $30 billion. ``A company looks at the books and at its business and says, `It's a good business and it's a good price.' They do your analytical work for you.''

To contact the reporters on this story: Michael Patterson in New York at mpatterson10@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.

Last Updated: December 17, 2007 17:56 EST