RETAIL STOCK OUTLOOK: June Sales Are Generally In-Line; Earnings Out
08:11am EDT 11-Jul-97 DLJ Securities (Gary Balter) WMT KM DH HD LOW S COST GNCI
DLJ ****** DONALDSON, LUFKIN & JENRETTE ****** DLJ
July 11, 1997 Gary Balter (212) 892-4228
Dana Eisman Cohen (212) 892-4550
Doug Donovan (212) 892-8906
RETAIL STOCK OUTLOOK
June Sales Are Generally In-Line;
Earnings Outlook For Retailers Is Still Better Than For Market
WAL-MART (WMT: $35 1/16)#
Rating: Market Performance
EPS Estimates 1/97A 1/98E 1/99E P/E 1/98E 1/99E
$1.33 $1.50 $1.65 23.4x 21.3x
Wal-Mart reported same store sales for the month of June up 6.4%.
While the comps are solid, comp levels are much less important for
Wal-Mart than inventory management and gross margins and these
continue to be positive. Inventories may actually be down again in
dollars this quarter. Because WMT is keeping tighter inventories, the
stores look crisper with an overall better presentation which is
translating into better sales. Better sales and tighter inventories
allows Wal-Mart to be more competitive on price without affecting
gross margins. Finally, WMT continues to rationalize its expense
structure leading to better bottom-line results. Wal-Mart will
report second-quarter earnings on August 12 and remains confident
they will meet analyst expectations. Therefore, we continue to view
WMT as a solid core holding for those investors concerned about in a
less certain overall stock market, as it no longer represents the
growth stock it once did, but rather a more consistent performer, with
less downside risk than the faster growing retail companies. It is
most likely on its way to $40.
Sales increases primarily took place in the last two weeks of the
month due in large part to seasonal improvements. Same store sales
increased 7.6% at the discount stores and 2.3% at Sam's. Overall
sales, up 11.8% from the similar period last year, were sparked by
increases in seasonal items such as air-conditioners, fans, sun-care
products, swim-wear, and water-toys which hit peak numbers despite a
delayed start. Discount store sales were in line with expectations
due to strong growth in seasonal items while sales in electronics,
sporting goods, toys, pet supplies, health and beauty aids,
pharmaceuticals, horticulture and apparel significantly improved.
Sell-through rates and current inventory levels continue to
substantiate consistent growth. Sam's Club came in slightly below
expectations despite improved performance in categories such as
apparel, sporting goods and food. However, membership renewals remain
robust while sales in the Southeast and Mid-West continue to post the
highest comps. Internationally, Canada achieved double digit sales
increases upwards of 20% and continued to gain share. Puerto Rico and
Mexico continued to post impressive results primarily due to improved
Club performance. |
