Retail Industry Update
by Risa Kaplan (MF Nanny)

SAN FRANCISCO, CA (April 17, l997) -- LJR Redbook Research said national retail sales rose 0.6% in the first week of April from March. Seasonally adjusted sales in the period were up 6.5% from the same period in 1996. On an unadjusted basis, sales in the week ended April 12 were also up 6.5% from 1996, the LJR Redbook report showed. The week's performance was mixed, however, with regional department stores reporting stronger sales and discounters weaker sales.

Finding clothing retailers who will be profitable over the long run, is sometimes harder than finding designer clothes size 10 during the Last Call sale at Neiman Marcus.

Designers and retailers have struggled in recent years to find lasting trends that will interest the 1990's consumers. Today's consumers are typically conservative, watching their spending and looking for affordable merchandise that they can fit into their daily lifestyle. They no longer want to be dictated to about what they wear and are looking for comfort and merchandise that can be worn over multiple seasons.

Fads can be fun, amusing, and frivolous, but have to be practical and inexpensive to pull off. Fads that last more than one season can only have good marketing and strong consumer response to be thankful for. They are a very risky venture for retailers and they labor long and hard to figure out what will be hot. Sometimes it is the clothes worn in a movie ("Annie Hall"), or a television show ("Friends"), or a garment worn at an awards show (the black Gap shirt worn by Sharon Stone at the Oscars), that spurs a popular look, but those trends usually are based in luck.

However even knowing this, many retailers flood their stores with such merchandise hoping to find one big seller out of the lot. This can be a recipe for disaster. This year's Evita look, from the movie of the same name, left retailers crying for more than Argentina, with more fitted suits and polka-dotted dresses than they could give away.

Therefore, retailers that are focused more on classic looks have done better these last few years, as there has been an accelerated trend in core lines. This week, let's consider some of those retail concerns that stayed away from faddish designs and in the long run might have more successful bottom lines as well as one manufacturer hoping its new line will not be just another fad.

ANN TAYLOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANN)") else Response.Write("(NYSE: ANN)") end if %>, is a company that specializes in traditional styles for women and targets those between 25-55 who are college educated and employed, primarily in professional and managerial positions. Last year fiscal 1996 was a disaster showing a loss of $0.05 a share. However, the first week of March this retailer reversed last year's earlier loss and finished the period in line with analysts forecasts of $0.12 a share. This figure excludes a charge of $2 million or $0.08 a share relating to the closing of the Ann Taylor shoe stores. In addition, the company reported that total sales for the firsts four weeks of the current fiscal year rose $1.3% to $51.2 million from $50.6 million a year ago. In January, the CFO departed and Black & Co. upgraded Ann Taylor to a strong buy from a buy. The analyst said "full sets of spring merchandise hit the stores and response has been very strong." Ann Taylor operates more than 300 stores in 40 states and the District of Columbia, and also sells it merchandise through catalogue sales. The stock closed today at $23 7/8.

LIZ CLAIBORNE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LIZ)") else Response.Write("(NYSE: LIZ)") end if %> is one of the nation's largest makers of women's clothing design, and sells sportswear and professional clothing targeting upper-middle income shoppers through department stores and its own retail outlets. Besides the Liz Claiborne line, it markets sporty clothes through Liz & Co., Elisabeth, which is its larger size women's line, Dana Buchman, its highest end line, and a men's label. Recently it acquired the JH Collectibles trademarks and leasehold interests, as that company was in liquidation. The move to acquire this high quality name was based on research showing very high favorable ratings among consumers. As announced Feb. 18, revenues were up from $2.08 billion in 1995 to $2.21 billion in 1996 and the net revenues rose from $126 million to $155 million, raising the earnings from $1.69 to $2.15.

Robertson Stephens & Co. initiated coverage of Liz Claiborne with a long-term attractive rating. The firm said "the company should see revenue and earnings growth from line extensions in its flagship women's better sportswear business as well as growth initiatives in women's bridge sportswear, moderate sportswear and international distribution." The investment house estimated Liz Claiborne will earn $2.48 a share in 1997 and $2.88 a share in 1998, which could lead to earnings growth at the upper end of the 15-20% range in fiscal 1997 and fiscal 1998. At the close of trading the stock was selling at $47 1/2.

Jones Apparel Group, <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNY)") else Response.Write("(NYSE: JNY)") end if %> This specialty retailer contracts for the manufacture and markets moderately to high priced women's sportwear, suits and dresses. The separates are usually all coordinated in styles, colors, and fabrics. The brand names include Jones New York, Jones Wear, Saville, and Rena Rowan. It makes clothes for Christian Dior, Lauren for Ralph Lauren and Evan-Picone. For the fiscal year ending December 31, the company sales rose from $776.4 million to $1,021 million with earnings per share going from $1.20 in fiscal 1995 to $1.50 in 1996. The Lauren line was completely sold out for this coming fall and the bookings for the Jones New York career line are trending above plan. Estimates for first quarter 1997, according to First Call, are $0.46 a share with the company reporting the week of April 23. The estimates for fiscal 1997 are $1.81 and $2.16 for fiscal 1998. At the close it was trading at $38 5/8.

ST. JOHN KNITS, <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %> manufactures and markets very high-end women's clothing accessories under the St. John trade name. Early this month the company announced a net income increase of 30%, or $0.43 cents per share, for the first quarter The per share result was three cents above the mean estimate of six fashion industry analysts surveyed by First Call. St. John Knits released first quarter 1997 results in early March. The company reported net income of $7.4 million, or $0.43 per share, for the first quarter versus $5.7 million, or $0.35 per share last year, an increase of 30%. Net income in the first quarter of fiscal 1996 was increased by $183,000 or $0.01 per share due to a worker's compensation insurance refund. Net income from recurring operations increased 34% or $0.09 per share, adjusted for this one-time refund. Net sales for the quarter increased 24% to $56.2 million. The retail division reported sales of $16.4 million, an increase of $3.1 million or 23%. Same store sales for the quarter were up 10.6%. Bob Grey, Chairman and CEO, attributes this results to demand for all the product line which continue to remain strong at both the wholesale and retail levels.

Retail sales for the first quarter ran 19% ahead of last year and the company's February sales trend is in the mid-to-high 20s. The company is in the midst of its fall market and will have all ready-to-wear orders in-house by the end of March. The backlog on the fall orders for shipping May through October is 23% ahead of the same time period last year. The company is sure this number will go up but this is not something it has worried about in recent years because it has always been sold out. The St. John line is known for its classic look and the St. John's Basic line consists of jackets, skirts and pants all in solid black, white and navy. The company is anticipating volume of around $7 million for Griffith & Gray and about $14 million for Sport line.

A loyal St. John Knit customer adores the clothes made by this manufacturer. Its products from clothes, to jewelry, scarves, shoes and handbags are sold in specialty retail stores such as Saks Fifth Avenue, Neiman-Marcus, and Nordstrom. In addition, the retail division operates 17 retail boutiques and five outlet stores. The company has moved into its expanded space in New York of 13,000 square feet and plans to move into its new Dallas boutique of 4,000 square feet in August. In late February, Ladenburg Thalmann & Co. raised its rating from a buy to a long term buy saying " it has an extremely stable record of sales and earnings growth." The stock closed today at $41 7/8.

PAUL HARRIS, <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAUH)") else Response.Write("(Nasdaq: PAUH)") end if %> is one of the biggest retail success stories in recent years. This specialty retailer offers moderately priced casual attire for fashion conscious career women. The company operate 224 stores under various trademarks such as Paul Harris and Pasta, with a plan to open at least 24 this year. The chief executive Charlotte Fischer, took the company forward by selling off it off-price retail chain shutting all those stores. Merchandise was revamped to include not only casual wear but career wear and accessories. The company also retired $19.2 million in debt stemming from the company's bankruptcy reorganization between 1991 and 1992. The total amount of $24 million was repaid three years ahead of schedule. The fiscal fourth quarter numbers for the period ending February 1, 1997, had earnings rising 60% from $0.42 a share last year to $0.62 a share this year. In a recent article in Bloomberg Personal it was listed as the stock with the best one-year price performance with a market capitalization exceeds $150 million, with current annual earnings greater than the previous years, and with price-to-sales ratios below 1.5% For 1996, Paul Harris' one year return was 1083.33%. At the close today it was trading at $16 1/4.

TALBOTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLB )") else Response.Write("(NYSE: TLB )") end if %> is a specialty retailer and direct marketer of women's apparel, accessories and shoes. In the past I always looked at this store as the quintessential New England green pants with the frogs on it, madras plaids and polo shirts retailer. However my recent trip to the local mall surprised me. The clothes seem to have changed. Marketing younger women, and incorporating style and pizazz into their classic lines may be helping this retailer which appears to have been suffering from low sales.In February, the store announced it will add an intimate apparel collection to 40 of its existing Talbots Misses stores. This should allow Talbots to integrate intimates into each store and allow their customers a greater variety in the merchandise carried. This sounds like a good approach as I doubt most Talbot shoppers are running to Victoria's Secrets and may be desirous of another outlet to purchase this type of apparel. In 1997 the company also plans to heighten the expansion into the Talbots Babies concept adding the baby line to approximately 19 existing stores and with plans to open five more. Talbots said its store expansion would bring its total store count to 605 at the end of fiscal 1997, up from 435 at the end of fiscal 1996.

Reporting on March 25th the company announced that it fiscal fourth quarter net income from 23.9% on a 1.4% rise in sales. Everen Securities Inc. initiated coverage of Talbots Inc. with intermediate-term and long-term ratings of outperform

In a research note, the firm said Talbots "is in a strong financial condition, has excellent product that we believe will turn around next year." Based on the same information Rodman & Renshaw Inc. downgraded its rating on Talbots to neutral from buy. Prudential also downgraded Talbots to hold from buy. Stock closed at $27 5/8.

In a recent "Cathy" comic strip, Cathy is buying a pair of sandals. The saleswoman says to her, "Buy the new open-toed stiletto sandals, and doom yourself to a summer of cramped calf muscles, potential ankle fractures, weekly pedicures..." Well Cathy along with millions of women this spring will be sliding their feet into a retro trend from the late seventies early eighties. GIRLS.....(she says painfully).slides are back..CANDIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAND )") else Response.Write("(Nasdaq: CAND )") end if %> the licensee of these clunky wooden shoes made popular in 1978, when Olivia Newton-John wore a similar style in the movie "Grease", have returned. A $3 million ad campaign with MTV personality Jenny McCarthy has helped and chief executive Neil Cole says he has orders from retailers for 2 million pairs, with orders coming in at about 200,000 a day. In December the stock was trading around $2 to a high of $6 3/8 in February. Given the distribution and if next quarters numbers are good Candies may see some research coverage.

However, a trip to my local mall showed me that Candies has lots of competition from various shoe designers, from the high-end Donna Karan shoes to the ones sold at Payless. The Candies slides are retailing at around $32 and are carried by major department stores. Right now there are no big stock research firms covering the stock. However, most shoe companies trade around 15 times estimates for current year earnings per share. Last year Candies generated a revenue of about $40 million from its entire shoe line. Cole would like these shoes not to be a fad, but rather a long-term trend, but only time will tell if the company can keep its customers happy. Candies closed at $5 21/32 at the end of the trading day.

Returns, Exchanges, Refunds

In an attempt to keep our weekly readers informed this occasional section will revisit some of the stocks mentioned in recent retail updates.

On March 25, STRIDE RITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SRR)") else Response.Write("(NYSE:SRR)") end if %> reported higher sales and earnings for the first quarter of its 1997 fiscal year. Net sales for the first quarter of fiscal 1997 increased 11% to $131.8 million, compared to $118.9 million in the comparable period of fiscal 1996. In the recently completed quarter, the company's earnings tripled last year's first quarter performance as net income increased to $4.1 million in 1997 from $1.4 million in 1996. Earnings were $0.08 per share in the first quarter of 1997, compared to $0.03 per share in 1996. Everywhere I look both Keds, and Sperry Topsiders are being marketed and sold.

Buoyed by a strong revenue increase, home-furnishings retailer HELIG-MEYERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HMY)") else Response.Write("(NYSE:HMY)") end if %> recently reported that its fiscal fourth-quarter profit more than tripled. Revenues in 1996 were $340,040,000, in 1997 they soared to $478,207,000. Net earnings rose from $0.06 to $0.20 a share and net income rose from $2,961,000 to $10,576,000.

Hambrecht & Quist LLC initiated coverage of WILLIAMS SONOMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WSGC)") else Response.Write("(Nasdaq: WSGC)") end if %>, with a buy rating. In a research note, the firm said Williams-Sonoma is growing rapidly through its focus on larger versions of its successful Williams-Sonoma and Pottery Barn stores, and the company is in the midst of a significant turnaround in its operations. H&Q estimated that Williams-Sonoma will earn $1.21 a share in calendar 1997 and $1.54 a share in calendar 1998.

Today another furniture manufacter and retailer ETHAN ALLAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> reported a 54% jump in fiscal third-quarter earnings, surpassing Wall Street forecasts. The following compares the latest and previous-year figures for the quarters ended March 31. Sales in the 1997 third quarter were $144,719,000, in comparison to 1996 third quarter of $134,631,000. Net income was $12,849,000, versus $8,348,000 for the same quarter.Earnings jumped from $0.57 to $0.88 a share. Ethan Allen's earnings-per-share beat the mean estimate of analysts surveyed by First Call by eight cents a share. The company attributed the earnings increase to improved manufacturing margins, continued growth in sales and lower interest expense.

The Board of Directors of THE BOMBAY COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBA)") else Response.Write("(NYSE: BBA)") end if %> announced two weeks ago that Mr. Carson R. Thompson has resigned as President and Chief Executive Officer. In the press release said " the inventory reduction program has largely been achieved, and the initiatives to re-focus Bombay's marketing and merchandising strategy are being implemented. The Board feels that now is the proper time to find a Chief Executive Officer with the appropriate merchandising, marketing and specialty retailing experience to complete Bombay's turnaround and drive the future growth and success of the Bombay franchise looking toward maximizing shareholder value."

Citing expense controls and a strong Christmas selling season, drugstore operator WALGREEN'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WAG)") else Response.Write("(NYSE:WAG)") end if %> reported its net income for the second-quarter rose 16.2% and exceeded Wall Street's estimates. Earnings rose to $147.4 million, or $0.59 a share, which was a penny better than First Call's mean estimate. A year ago, the company earned $126.8 million, or $0.51 a share. Overall, sales rose 13.2% to $3.60 billion. For the six months ended Feb. 28, the company posted earnings of $222.5 million, or$0. 89 a share, on sales of $6.66 billion. In the same period a year ago, Walgreens earned $190.5 million, or $0.77 a share, on sales of $5.87 billion. The company projects this business to get "even stronger in the future as baby boomers age and as more people find themselves in managed care."

THE BOUTIQUE

The FTC again called off the marriage of OFFICE DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> and STAPLES (Nasdq: SPLS) even with the sale of 63 stores to OFFICEMAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OMX)") else Response.Write("(NYSE: OMX)") end if %>. However the two companies will be able to make their case for the merger at an videntiary court hearing scheduled for May 19.

NIKE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> took a tumble last week on a downgrade by a Smith Barney Inc. research report which said the maker of athletic shoes, accessories and apparel planned to substantially reduce shoe production. It traded as low as $54 a share off from a mid-February high of $76. The stock rebounded a little this week after the Masters win by Nike's $40 million man Tiger Woods. However the price was chipped away at today when the CEO of FOOTSTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTS)") else Response.Write("(NYSE: FTS)") end if %> indicated recent sales trends and the athletic sector in general have shown signs of slowing. These three companies all closed down. NIKE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> closed at $53 7/8. JUST FOR FEET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FEET)") else Response.Write("(Nasdaq: FEET)") end if %> $14 1/2, and FINISH LINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FINL)") else Response.Write("(Nasdaq: FINL)") end if %> $12 5/8.

Top fashion designer Ralph Lauren announced that his company is going public. Polo Ralph Lauren Corp. filed for an initial public offering of up to $600 million in Class A common stock, according to a filing with the Securities and Exchange Commission. Goldman, Sachs & Co., Merrill Lynch & Co., and Morgan Stanley & Co. Inc. will underwrite the offering. No details on how many shares would be offered was announced. The stock which will be traded on the New York Stock Exchanged will have the ticker symbol RL.

Remember your plastic -- "We never leave Fooldom without it."

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