Washington area stores aren't the only place you can find plenty of sale signs these days -- local retail stocks are being deeply discounted, too.

Since August, retail stocks nationwide have fallen an average of about 26 percent, more than double the decline of the Standard & Poor's 500 stock index. Dwindling consumer confidence, competition, flat sales and a generally retreating stock market have deflated retail stock values this year.

Stock values are likely to get even flatter: Retail industry analysts are projecting a less-than-merry Christmas season for merchants and have been dropping their earnings estimates for major retailers, including J.C. Penney Co., Sears Roebuck & Co., Nordstrom Inc. and the Limited Inc. Only perennial top performer Wal-Mart Stores Inc. is getting good reviews from analysts, though its stock also is down one-quarter from its 52-week high.

Even though Washington area retail sales have once again outpaced the national rate so far this year -- they are up 8.5 percent for the first seven months here compared with a national gain of 4.2 percent -- the share prices of 10 of the largest publicly traded Washington retailers all have fallen -- by an average of about 21 percent, improved by four percentage points last week only because of a gain by Merry-Go-Round Enterprises Inc., based in Joppa, Md.

Some local stocks, including W. Bell & Co. and Hechinger Co., are near their lowest price in five years. And price-earnings ratios, which professional investors use to gauge a stock's investment potential, have fallen by one-third here since the start of the year, indicating that investor expectations have sunk. The only positive news for retail stocks here is that they have not performed as badly as those of financial institutions, defense industry and home construction stocks.

"Washington-area retail stocks are taking a beating like everyone else, following a nationwide pattern," said Walter Loeb of Loeb Associates, a consulting firm in New York.

"The over-arching concern in the marketplace is that consumer spending may decline, and that, coupled with increased competition, has created downward pricing pressure," said Peter Keefe, head of research at the Washington-based brokerage firm Johnston Lemon & Co. "Retailers here and elsewhere are victims of the perception of the economy as slowing."

In some cases, their stock market performance does not mirror the solid financial results by area retailers, which instead appear to be the victim of Wall Street's increasingly negative perception of retailers.

Cosmetic & Fragrance Concepts Inc., a discount retailer of cosmetics based in Savage, Md., reported strong sales and earnings growth for the nine-month period ended June 29. Net earnings jumped 153 percent on a sales increase of 20 percent.

Yet the stock, now trading at $4.75 a share, was down 19.1 percent for the month and 20.8 percent for the year. The price-earnings ratio is at 9.3, down from a high of 13.

"It used to be that stock prices were based on your sales increases and earnings, and so far we have performed well, but looking at our stock performance you would tend to believe it did not happen," said Ben S. Kovalsky, president of Cosmetic & Fragrance Concepts. "We are a victim of circumstances."

Kovalsky said he was spending a lot of time talking to analysts and investors, "so that hopefully they will segregate us from some of the others and look at us for what we are."

Other reasons for falling stock prices have less to do with general market conditions and more to do with the bottom line. Hechinger, for example, has spent the last two years recasting its business and in the process earnings slid before recovering. Sales are up 20 percent and profit is up 12 percent in the first six months of this year compared with the same period a year ago.

That improvement hasn't bolstered its stock price -- analysts and investors are worried about the Landover-based hardware retailer's recent expansion into the jittery New England marketplace.

Therefore, the stock has been one of the hardest hit, down 38.6 percent for the year, with shares trading at $7.75, only 70 percent of Hechinger's book value, which is its assets minus liabilities. Hechinger's price-earnings ratio is only 7, the lowest of profitable Washington-area retailers.

"It's tough to come up with the intricacies of what is happening," said Lennie Zallar, Hechinger vice president and treasurer. "With the real estate downturn here, the Washington area has caught up with the rest of the country and a company like ours looks vulnerable."

Things are worse at W. Bell & Co., the Rockville-based catalogue showroom retailer, whose stock price has dropped 53.1 percent to $1.50, spurred by drastically declining sales, losses and a highly contingent buyout offer in August of at least $2.50 a share.

Bell, the stock of which is the most deeply depressed of all retailers here, said yesterday it would close its Chicago operations by early next year. The company is being downsized to return it to profitability, said Bell executives in a statement. They said Bell anticipates that "some or all" of the six locations in Chicago, which have been in operation since 1981, would be closed.

At its most crucial juncture in 40 years of business, Bell is also contending with other serious issues besides an ailing stock price as it enters a potentially difficult holiday selling season. Even its flagship catalogue, expanded and released yesterday, was a month late in coming out.

The downsizing is a sign of a company trying hard to recover after years of unsuccessful expansion. Bell shuttered its Houston operations in 1987 after 21 years there, and with the latest closings, it will do business only in the Washington-Baltimore region. The 14 stores here primarily sell discounted jewelry and electronics, such as stereos and televisons.

While most local retail stocks improved last week, along with the rest of the market, what will happen next here and nationwide depends on sales during the holiday season, the most important time for retailers because that is when people are doing the most shopping. "With one pretty bad Christmas behind us, there are some dire predictions about the next one," said Lew Sosnowik, vice president at Koonce Securities Inc. in Rockville.

But even those bad expectations might be positive news for retail stocks, which could recover if sales shoot up in December.

"The state of retail stocks is the result of everyone discounting them in anticipation of a bad Christmas," said Michael Lavington, president of Kay Jewelers Inc., the Alexandria-based jewelry retailer whose stock is down 11.9 percent for the year at $12.12, though it has been buoyed because of an almost-completed buyout by a British firm. "Any results that are better than depressing will be a pleasant surprise and perhaps it will give us all something to smile about again."

............Yesterday's...Four-week..Year-to-date..Price-earnings

..................stock.......price........price........earnings

..................price......change.......change..........ratio*

W. Bell & Co......$1.50....... 7.4%....... 53.1%..............NE

Circuit City

Stores Inc........16.00....... 0.0 ....... 26.4 .............8.4

Cosmetic & Fragrance

Concepts Inc.......4.75...... 19.1 ....... 20.8 .............9.3

Crown Books Inc...15.50.......+3.3 ....... 25.3 .............7.3

Dart Group Corp...75.00.......+7.1 ....... 19.4 ............11.9

Giant Food Inc....23.87....... 3.6 ....... 16.2 ............12.2

Hechinger Co.......7.75....... 6.1 ....... 38.6 .............7.0

Kay Jewelers Inc..12.12....... 4.0 ....... 11.9 ..............NE

Merry-Go-Round

Enterprises Inc...18.00......+27.5 .......+22.3 ............10.1

Trak Auto Inc......7.00.......+3.7........ 15.2.............11.7

*Price-earnings ratio is the price of the stock divided by its earnings per share. NE=Negative earnings; ratio impossible to calculate