RETAIL STOCK OUTLOOK: Continue To Recommend Overweighting Retail Sto
10:24am EST 9-Jan-98 DLJ Securities (Gary Balter) WMT KM HD LOW JCP COST S CC
DLJ ****** DONALDSON, LUFKIN & JENRETTE ****** DLJ
January 9, 1998 Gary Balter (212) 892-4228
Dana Eisman Cohen (212) 892-4250
Doug Donovan (212) 892-8906
Jeff McMahon (212) 892-2351
RETAIL STOCK OUTLOOK
Continue To Recommend Overweighting Retail Stocks
Solid December Sales
Underlying Trends Remain Strong, Margins Solid
(Part 3 of 7)
VIEWPOINT
WAL-MART (WMT: $39 5/16)#
Rating: Market Performance
EPS Estimates 1/97A 1/98E 1/99E P/E 1/98E 1/99E
$1.33 $1.54 $1.75 25.5x 22.5x
In December, Wal-mart's comp sales at the discount stores rose a solid 6.5%
and Sam's Club's comps grew robustly 4.4%, both at the high end of plans.
These were some of the best sales we have seen from WMT in some time,
however they were a little more promotional than expectation because the
sales came late. In addition, labor costs were higher because of the
minimum wage increases effect on the seasonal help. This stock should
continue to be a good stock as it represents the safety that investors are
looking for as they search out retailers.
Holiday sales were on the high end of expectations, but came in short and
very intensive bursts. Specifically, Thanksgiving and the two days before
Christmas were the strongest. Throughout the holiday season, Wal-Mart
improved its in-stock position and merchandise presentation, while
receiving some of the best customer service scores. The post-holiday sales
were good. Inventory and sell-through improved year over year at both the
discount stores and the clubs. By division, the discount stores started
off with sales on the low end of plan for the first three weeks of the
month and finished up at the high end of plan due to very strong Christmas
and good post-holiday sales. Robust demand for seasonal, electronics,
pets, books, and apparel drove revenues at the discount stores. The Clubs
posted sales on the high end of expectations as office supplies, toys,
books, and softgoods sold well. Membership renewal rates were strong,
supporting the excellent value members associate with the clubs.
Internationally, Canada and Puerto Rico came in on plan, while Mexico and
Argentina were slightly below expectations. On December 30th, 1997, Wal-
Mart completed the acquisition of the 21 store Wertkauf hypermarket chain
($1.4 billion in annual sales) in Germany. With robust holiday sales
results, a good merchandise mix, and solid sell through of inventory, the
fourth quarter outlook is positive. There has been some off-price
promotional activity occurring in the sector, but it should not impact
bottom line results, and management is comfortable with fourth quarter
consensus estimates of around $0.55. January comps are expected to be in
the mid-single digits at the discount stores and in the low single digits
at Sam's. |
