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Strategies & Market Trends : Making Money is Main Objective
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To: Softechie who wrote (584)1/23/2001 12:39:01 PM
From: Softechie   of 2155
 
Broadlines - Retail/Broadlines
- Retail Industry Update
Last week the second largest retailer in the country, Sears Roebuck & Co. (S, $36, Hold), reported earnings and gave guidance for 2001 for the first time. Neither announcement has positive implications for Sears or the industry as a whole.

Sears' decision to increase its capital spending in 2001 from $1.1 billion to $1.4 billion sends a distressing signal about the industry and Sears in particular. Once again Sears appears to be going for the "long ball" as it attempts to roll out The Great Indoors format. In contrast, Home Depot (HD, $43, Buy) has been experimenting with Expo for almost nine years now. From an industry standpoint the number two player is setting an example that the industry can hardly afford at this stage of the retail cycle.

On the earnings front, Sears' fourth quarter performance should give investors some reasons to pause as, inventories were up one-time items and tax rate declines more than "made the quarter". But it is the inventory increase that raises concern not because of obsolescence because of the positive gross margin contribution that such implied in the fourth quarter, which will have to be worked through the 2001 year.

Sears and the retail industry are both in search of firmer ground to stand on. Lower interest rates and easier second half comparisons are not enough reason to own these shares or the industry. Instead a moderation in capital spending and more realistic earnings expectations are needed, neither of which seem evident at this juncture
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