RETAIL STOCK OUTLOOK: September Sales Running On Plan For Most Hardl
09:52am EDT 7-Oct-97 DLJ Securities (Gary Balter)
DLJ ****** DONALDSON, LUFKIN & JENRETTE ****** DLJ
October 7, 1997 Gary Balter (212) 892-4228
Doug Donovan (212) 892-8906
Jeff McMahon (212) 892-2351
RETAIL STOCK OUTLOOK
September Sales Running On Plan For Most Hardline Retailers;
Improving Margins Should Assist Bottom Line Results;
Easy Comparisons in the Second Half of 1997
VIEWPOINT
o Expect sales in line for most of the hardline retailers, but below
plan for most retailers on the apparel side when all retailers release
September sales on Thursday, October 9th.
o Early releases: WMT# reported 5.1% comps, in-line with expectations,
and CC# reported comps down 3%, in-line with low end of expectations.
o Companies continue to emphasize that the bottom line results will
still be there, despite some lighter sales numbers.
o We continue to believe that the retail group will outperform the
market as the companies focus on EPS returns and face easy comparisons in
the back half of the year.
Expect September sales slightly on the lighter side with apparel
particularly weak due to mild weather. Sales picked up in the last two
weeks of the five week month, but not substantially. Most importantly
though, companies are indicating that earnings are under little to no
pressure as a result of the lighter sales because of the focus on improving
margins. As we head toward the Christmas selling season with extremely
tight inventories, very little price competition and easy comparisons, look
for retailers to show excellent earnings results for the third and fourth
quarter. We continue to recommend overweighing the sector with our best
names: CC#, DH#, CPU#, COST*++@+, SPLS@* and HD#.
Sales at Wal-Mart which were released this morning should be a good
predictor of the rest of the retailers. WMT's numbers were in-line with
expectations, although hampered by warmer weather. The company is
comfortable with the earnings expectations and point to a generally benign
competitive scenario. This should be good news for the rest of the
retailers as gross margins should remain intact, even though most companies
did not have great sales results this month. Look for better sales results
in October and November as sales comparisons are relatively easy.
o WMT#
Because WMT is hosting a analyst meeting today and tomorrow in
Arkansas, the company "pre-released" their sales. Comparable sales at
Wal-Mart's discount stores increased 5.1%, on plan for the month,
while sales at the clubs grew 1.3%, as it appears that sales picked up
in the final weeks of the month. The company notes that earnings are
in good shape as the company keeps inventories tight and continues to
rationalize expenses. Hardlines had good results along with the more
ancillary businesses, including pharmacy and vision centers. Like
most of the other retailers, WMT had weaker apparel sales.
At the meeting, we expect that the international opportunities that
WMT is looking to pursue in 1998 and beyond will be the hot topic.
The cash flow story as it detailed in the last analyst meeting has
been playing itself out, leading to better returns and better stock
performance. While this leg of the story is by no means over,
investors are looking for the next phase which by all indications is
in the international expansion. Historically, the company does not
use this analyst meeting as a forum to release ground breaking
information so we do not expect any major surprises.
o S#
Sears' sales had been one of the strongest of all the major retailers
in the first few weeks of September but did tail off somewhat in the
last two weeks. Expect the company to report comps in the low single
digits. Hardlines were stronger than the softlines, as expected. The
off the mall stores continue to show mixed results with the auto
stores still suffering from the conversions, running a mid to high
single digit decrease. |
