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SOME RETAILERS SEE JOY
IN WORLD AND BOTTOM
LINES
By Andrew Leckey
November 28, 1998
Happy holidays: A positive mental attitude
bolstered by a reinvigorated stock market
could give selected retailers just the shot in
the arm they need to excel this holiday
shopping season.
Remember that the emphasis is on selected
retailers. Some experts, for example, consider
Family Dollar Stores, Federated Department
Stores and Saks Holdings the most attractive
stocks you could hope to find under this
year's Christmas tree.
Smart retailers have gone increasingly
high-tech, using computerized tracking to cut
costs and control inventory. They're masters
of advertising, their powerful blitzes capable
of emblazoning relatively new names such as
Old Navy into the public consciousness.
Consolidated into fewer, stronger players, the
retailing industry is capitalizing on important
underlying trends, such as the nationwide
move toward more casual style. During a
volatile period in which saving money is
considered chic, it has learned that discount
shoppers demand a wide range of quality
merchandise.
Ironically, just as many consumers squirrel
away Christmas presents all year long and
thereby take a bite out of traditional
fourth-quarter sales, the growth of mail order
and Internet shopping has made last-minute
shopping easier than ever before.
"Technology allowing retailers to better
reduce costs and control inventory has put the
industry in much better shape than it's been in
for quite some time," asserted Wayne Hood,
retail analyst with Prudential Securities in
Atlanta. "Computerization is separating
winners from losers."
With discount retailers leading the way, Hood
expects 4 percent growth in retail sales this
holiday season, which is 1 percent less than a
year ago. Stores specializing in apparel should
prosper, he believes, while department stores
can count on sales increases of only about 2
percent to 3 percent.
"Department stores seem to have lost their
excitement, while we're seeing very strong
results from specialty retailers," noted
Thomas Tashijian, retail analyst with
NationsBanc Montgomery Securities in San
Francisco. "In addition, discounters continue
to widen their assortment of better quality
goods and for the past several years have been
effectively catering to aging Baby Boomers."
Tashijian is forecasting a 4 percent to 5
percent gain in sales for general
merchandisers, that relatively modest
projection due to the fact that consumer
income has slowed to around 4.9 percent.
"Strong expense management has been saving
the day for many companies, their earnings
holding up despite some horrible sales results
in the third quarter," observed Shari Eberts,
retail analyst with J.P. Morgan Securities in
New York. "We've seen consumer confidence
perk up in November, and the stock market
showing renewed strength should also help."
A number of recent surveys do indicate that
consumers are likely to spend most vigorously
at discounters and specialty stores this holiday
season, Eberts acknowledged. But, unlike the
other analysts, she believes the
much-maligned department stores have
focused their businesses quite well toward the
fourth quarter by emphasizing specific gift
items. They may surprise some experts.
"Some companies are benefiting from a
stronger advertising presence, with, for
example, Gap Inc. (which includes Old Navy
among its divisions) spending up to 4.5
percent of sales on very strong advertising
campaigns on television and in print," said
Dorothy Lakner, retail analyst with CIBC
Oppenheimer.
Emerging from the near-disaster of
third-quarter psychological, economic and
market jitters, some retailing stocks show
promise in the fourth quarter:
- Family Dollar Stores, a low-end general
merchandiser, is recommended by Hood and
Tashijian due to the continuing popularity of
bargain-hunting.
- Federated Department Stores, capable of
posting profit gains despite weak sales, is
suggested by Eberts and Hood.
- Saks Holdings, which now includes the
Proffitt's and Carson Pirie Scott businesses, is
a pick of Eberts and Tashijian. Despite tough
sales comparisons for the fourth quarter
compared with last year, it's capably
controlling expenses.
Andrew Leckey answers reader questions
each Monday in Your Money. |
