From DLJ:
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WAL-MART STORES INC.
Rating: MARKET PERF. Change: None 12-Mo.
Wal-Mart is perhaps the best proxy for all of retail, at least for the hardliners, and as such is hopefully an excellent indicator for things to come as retailers report their 3Qs and look to the 4Q. Wal-Mart reported solid EPS, supported by strong gross margins, better inventory management and a focus on the bottom line. It is for these three reasons that we have been arguing that retailers will show stronger growth than the market for the remainder of ''97. Wal-Mart''s results only strengthen the argument, as the company continues to perform well on all fronts. Just as importantly, Wal-Mart seems a little more confident about the Christmas selling season than in most recent years. Inventories are down, pricing is stable, and the consumer appears to have the money and confidence to spend. We continue to recommend overweighting the retail sector and see Wal-Mart as a core holding in that group. Going forward, better than expected gross margins means less pricing pressure and indicates that Wal-Mart is better leveraging its size and power with suppliers. In addition, Tighter inventory means fewer markdowns and less labor expense, helping on the gross margin and SG&A lines, respectively. Lastly, international operations are beginning to produce some solid returns, with the division reporting an operating profit of $52 million versus a loss of $15 million last year. With the recent acquisition of Cifra, and results improving in South America, look for even better results in the 4Q and ''98. |
