RETAIL STOCK OUTLOOK: Continue to Recommend Overweighting Retail Sec
07:51am EDT 30-Jul-97 DLJ Securities (Gary Balter)
DLJ ****** DONALDSON, LUFKIN & JENRETTE ****** DLJ
July 30, 1997
RETAIL STOCK OUTLOOK
Continue to Recommend Overweighting Retail Sector
Raising Estimates For Wal-Mart
VIEWPOINT
o Economic environment solid for continued retail stock
outperformance, little inflation, slow growth economy.
o Over the last month, as we expected, we have had to raise the
estimates for DH#, COST+*++@, and now WMT#, each as a result of better
expense rationalization, more benign pricing environment, and
retailers' focus shifting to bringing results to the bottom line.
o Even with upward revisions, potential upside surprise remains for
each of them.
o We continue to recommend overweighting the retail sector.
o July sales continue at their high levels.
Wal-Mart: Raising Estimates To Street Consensus
We are also raising our estimates for WMT from $1.50 for 1997 and $1.65 for 1998 to $1.53 and $1.71, respectively. This should come as no surprise to those who have been following our argument that all of the retailers, driven by the leader Wal-Mart, are getting more out of every sales dollar. If anything, the evidence was there for Wal-Mart to beat the earnings, but we kept a low conservative estimate below the street. It also reflects a very solid sales month for Wal-Mart with comps in the high single digits.
As we wrote, last week, interesting with Wal-Mart, as they have lowered their inventory levels, they are finding larger markdown savings and labor savings than they planned. This is leading to better expense reductions, and giving Wal-Mart the opportunity to lower prices while exceeding earnings forecast. This is one of the reasons behind Wal-Mart's solid earnings.
At Wal-Mart, by our estimates, the company has added at least three cents to its bottom line this year by keeping substantially leaner inventories, slowing their payable payment schedule and using aggressive pricing selectively. Next year, assuming these things continue, at a slower pace, there is no reason that $1.71 will not prove to be conservative. |
