Retail Industry Update
by Risa Kaplan (TMF Style)

SAN FRANCISCO, CA (May 29, 1997) -- U.S. seasonally adjusted retail sales rose 0.5 % in the period ending May 24 versus April's final estimate, according to the Lynch, Jones & Ryan Inc. Redbook Retail Sales Index. Retailers blamed cooler weather, which continued in the Midwest and Northeast. Discount stores and, to a lesser extent, national department stores, have been particularly affected, said Howard Eilenberg, a research analyst at Redbook Research. However, seasonal merchandise is reported to be selling in in the warmer regions, like California and Florida, suggesting a timing effect will reverse, Eilenberg said.

"Where the weather is warm, the goods are selling," he said, adding "I would not press the panic button." The current sales numbers for the week excluded most of the Memorial Day weekend, but retailers said holiday sales appeared to be very robust.

HEY, TRUDY, WANNA GO TO THE MALL...AGAIN ?

Last year the American "mall" celebrated in 40th anniversary. In 1956, the first enclosed shopping center, Southdale, opened in Edina, a suburb of Minneapolis. Today, The Mall of America,the largest U.S. mall, also outside of Minneapolis, is -- 4.2 million square feet of retailing extravaganza.

In his 1985 history of suburbia, "Crabgrass Frontier," Kenneth T. Jackson explained that the malls were built as a reaction to the move by Americans to the suburbs. As the flight continued into the burbs, so did the ideal that something should exist that contains "no unsavory bars or pornography shops, no threatening-looking characters, no litter, no rain, and no excessive heat or cold." Malls, which first appeared the year after Disneyland opened, were designed to be brightly lit, poverty-free, theme-park versions of the less desirable old downtown.

A few years ago in Los Angeles, "fake" streets were created near Universal Studios, a sort of fall back to the main street days in our parents' or grandparents' past. Built within the confines of a mall like space, the pedestrians are to fool themselves into thinking for a second that this is Anystreet USA with all their favorite retailers and restaurants.

Every month the government, and various indexes remind us how much we Americans spend and I have all those little yellow credit card receipts as a constant reminder. Like in the movie "If its Tuesday it must be Belgium," for me if it's The Gap, Macy's, or Victoria's Secret, then is must be an an American suburban mall. However, no matter how glamorous or dominant the architecture is, a mall is still a mall, with the same stores that pervade all the others, the same food court, and escalators and piped in music. They are public arenas to those that visit, however under the Supreme Court 1976 decision, they can also still be private enclaves that can be monitored by private security men, have self imposed curfews and are not public forums for issues dealing with free speech.

Here are four lesser know retailers, that might be in the mall near your house:

PIERCING PAGODA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PGDA)") else Response.Write("(Nasdaq: PGDA)") end if %> is the largest specialty retailer of jewelry through kiosk stores in the US. The company, which has been in business for 25 years, offers moderately-priced 24 karat and 10 karat gold and silver jewelry including hoop, clip-on, and post earrings, sports charms, initial charms, personalized jewelry, chains, rings, bracelets, and necklaces. Piercing Pagoda operates about 734 Piercing Pagoda and Plumb Gold stores in regional shopping malls across the country. Piercing Pagoda's stores average 162 square feet in size and typically carry approximately 3,000 stock-keeping units.

Over the past three years, the company has opened 408 new stores, including 93 kiosks acquired from Gemstone Jewelry in January 1997 and the recent acquisition of 43 kiosks from Silver & Gold Connection. Comparable store net sales have demonstrated strong growth and new stores seem to be having excellent results as shown by record operating results.

Net sales for the year ended March 31, 1997 increased 37% to a record $166.9 million from the $121.6 million reported in the prior year. Net income increased 32%, or $1.40 per share, compared to $1.07 per share, reported in fiscal 1996. For the fourth quarter ended March 31, 1997, the company reported an increase in net sales of 40% to $37.9 million from the $27.1 million reported in the same period of the prior year. The net loss for the quarter was $216,000, or $0.04 per share, compared to a net loss of $230,000, or $0.04 per share, reported in the fourth quarter of fiscal 1996. Earnings appear to have been partially offset by an increase in supervisory, pre-opening, administrative, depreciation, and interest expenses.

Piercing Pagoda also announced May 16, 1997 the filing of a registration statement with the SEC in connection with a public offering of 1,550,000 shares of its common stock. The shares traded down 1/2 to $27 on minuscule trading.

Actresses Demi Moore and Michelle Pfeiffer, don't want to sport a fragrance that's more famous than they are. The star solution? Create personal scents at home. Women are looking for designed fragrances that can be combined, or "layered," with each other to achieve an entirely personal, complex perfume. I can see the ads now "Spray on a vanilla- or musk-based scent to tone down a sweet fragrance, like a gardenia-based scent. Or use a vanilla cream to add depth and warmth to a citrus fragrance."

If this is as trend, one of the national stores to carry the "ingredients" for the customer to play around with is THE BODY SHOP INTERNATIONAL, <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BDSPY)") else Response.Write("(Nasdaq: BDSPY)") end if %>. This retailer is a pioneer in "natural" skin, hair, and body care products. Its popular potions include Banana Shampoo, Honeyed Beeswax and Almond Oil Cleanser, and Peppermint Foot Lotion. The company has more than 1,300 stores, most of which are franchised, in 45 countries. In the US, Body Shop stores are a staple of suburban malls. The company is expanding its retail outlets in Europe, Japan, and the US, and it has launched in-home parties, a la Tupperware, in the UK. In addition, this store has opened storefront in the United Terminal at San Francisco Airport with plans to expand to other sites. This is a fabulous marketing idea, depressed women waiting for their late plans can always spend a fortune in body lotion stores, trust me.

Fiscal year ended February 1997 and for the sales year 1996 sales were 392.4 million, up 16.8% from revenues of 1995. businesses that have shown positive business growth over a three year period, Anita Roddic, president of this company, was recently named one of the "Top 50 Leading Women Entrepreneurs of the World." On 400 shares trading today the stock was up $1 to close at $15 5/8.

Today young children all over our nation are being taught the politically correct theme of the environment and nature and the demise of the illusory ozone layer. To cater to these children and their families, NATURAL WONDERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NATW)") else Response.Write("(Nasdaq: NATW)") end if %> sells environmentally themed merchandise, including apparel, books on nature and science, jewelry, mineral specimens, posters, maps and globes, science kits, telescopes, and toys and games. This chain targets shopping malls where the open storefront and floor plan are created to draw walk-up traffic (mainly children and educated adults), allowing it to dispense with most advertising costs. Targeted customers are predominantly middle to upper-middle income adults between the ages 25 and 45, and children ages 6 to 12. The company seeks store locations that are approximately 2,500 square feet with a frontage of at least 25 square feet.

Natural Wonders works with Conservation International (CI) to raise awareness of environmental issues and raises money for CI through a program called Partners in Conservation. The company operated 152 Natural Wonders stores compared to 146 stores last year.Since March 10, 1997, Natural Wonders has operated 12 What A World!, Inc. stores under a management agreement.

In the fiscal year ending February 1997, revenues rose 1% to $138.8 million. Net income rose 60% to $2.9 million. Revenues reflect the addition of new stores. Net income also benefited from a higher product mark-up attributable to product mix and lower costs, & lower debt levels.

Natural Wonder recently announced a net loss for its first fiscal quarter ended May 3, 1997 of $0.26 per share, as compared with a net loss of $0.28 per share, for the same period a year ago. Net sales for the first quarter were up 1.4%. Comparable store sales for the first quarter decreased 1.5% from the comparable period in the prior year. Natural Wonders closed unchanged at $ 4 3/8.

Attracting the nutritional and health conscious Americans, GENERAL NUTRITION COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNCI)") else Response.Write("(Nasdaq: GNCI)") end if %> has become the nation's #1 specialty retailer of nutritional supplements and other health products with more than 3,047 company-owned and franchised stores. The company's stores, which operate under the names General Nutrition Center, Nature Food Centre, Health & Diet Centre, and Nature's Fresh and Amphora, sells health food, vitamins, diet supplements, health aids, fitness products, and other health-related items. In addition, GNC manufactures vitamin, mineral, herbal, and sports supplements for its own private-label sales and for third parties. The company operates in all 50 states, Puerto Rico, and 18 foreign countries.The stores, which are generally between 1,200 and 1,800 square feet, are located primarily in regional shopping malls in the United States.

On May 13, the company reported fully diluted earnings of $0.29 per share for the first fiscal quarter ended April 26, 1997, a 32% increase over last year's $0.22 per share. Consolidated revenue for the quarter grew by 19% to $273 million. Net income increased by 18% to $23.9 million from $20.2 million in the first quarter of the prior year. The company also announced that it had bought back 1.5 million shares of common stock in the first quarter.

For the fiscal year ending February 199, sales rose 17% to $990.8 million. Net income fell 94% to $3.9 million. Revenues benefited from higher comparable store sales, new store openings and increased average sales per customer transaction. Net income was offset by the inclusion of a $80.2 million restructuring charge. However, many products like wheat grass and tofu, which used to only be available at nutritional establishments, are now becoming more readily available as many grocers are expanding into this lucrative organic and nutritional market. At the end of the trading day shares were down $1/8 to $22 1/4.

Nike is Not Just a Sneaker Company Anymore, Or I am a Shareholder "Where is the Mylanta?"

Shares of NIKE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> did a roller coaster ride this week after being in a rather obvious slump. On Tuesday, the stock started to move and went from $55 1/4 to $60, but no one was really sure why. Wednesday Wall Street rumors publicly emerged that BERKSHIRE HATHAWAY ( NYSE: BRK.A) was interested in accumulating more of the Oregon-based sneaker company, and gained $3 7/8 to $64. Berkshire already owns 5 million shares of the 287 million outstanding through its ownership of GEICO. Then the other shoe dropped today as Nike announced that it expects earnings for the fourth quarter ending May 31, 1997 will be between $0.51 and $0.56 per share, below the consensus estimate of $0.69.

The company reported that earnings would be impacted by a one-time pretax charge of $18 million ($0.04 per share) primarily related to the shutdown of a manufacturing facility at its Bauer Inc. subsidiary as part of its long-term plan to reposition some manufacturing facilities to more cost-effective overseas operations. The lower than estimated revenues are attributable to shifts in the mix of futures and at-once orders, timing of shipments in Europe, product shortages, and a slight increase in U.S. order cancellations.

So let's reflect back to this amusement park ride that left some investors holding their stomachs. The stock split 2 for 1, October 23, 1996, and then traded lower toward the end of the year, as money managers took the enormous profits that Nike had delivered to them over the past twelve months. (In October 1995, Nike traded around $65 and split a year later at $124 and change). Right after the split, an analyst at Montgomery Securities noted that perhaps sneaker production might be off. Those two factors brought the stock down to the low $50's in no time flat. Over the course of the next six weeks (including the exuberant January effect, Nike rebounded to a high the week of February 21, to a post split high of $76 3/8. Then, in light of a series of bad press related incidents, the stock started its descent down down down to fall as low as $52 1/4 first week in April.

The first nail in the coffin was the CEO of FOOTSTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTS)") else Response.Write("(NYSE: FTS)") end if %> announcing that, in fact, sneaker production may be slowing down based on demand. The second nail was national press reports resurfaced describing Nike as the big bad company engaged in "unfair labor practices" in Asia.

But notwithstanding this week's rise and fall of the Nike Empire, let's try to remember two important things about this dynasty. First this is a mega company with total revenues, for the trailing twelve months ending February 28, 1997, of $8.66 billion. Secondly, Nike just doesn't do sneakers anymore. Besides the $40 million deal that Nike made with Tiger Woods, that should come back many times over in sales and goodwill for Nike, there are millions of Americans who want to be seen in Nike. More than Polo, Tommy Hilfiger, Reebok, and Converse, this brand name is consistently the most popular sports apparel for teenagers. But besides teenagers, more and more adults are wearing all the casual clothes (forget the sports stuff) shoes, socks, running shorts, fleeces made by Nike. It also, in my opinion, reaches a more broadly based consumer then some of the higher-end casual retailers. My visit to the local sneaker store reminded me that they can barely keep the Nikes in stock. My daughter, who is not Ms. Athletic, has to have a least one pair of Nikes to be cool. Nike also runs sports camps all over the nation. My son is going to Nike Golf School this summer, which along with soccer, and tennis, is being offered at all over the country at major schools.

According to the company, fiscal 1997 will be a record year with projected revenues and earnings increasing by more than 40% and that it expects to see revenue growth in fiscal 1998 in excess of the company's previously-stated long-term, annual goal of 15%. So with or without Buffet, with or without cries of "slave wagers" and even with these lower than expected estimates, there is nothing that is standing in the way of this company continuing to make money in the future. Disappointed shareholders saw $8 3/4 today to close at $55 3/4.

RETURNS, EXCHANGES AND REFUNDS

Somebody must have put this weekly update under the nose of someone at DONNA KARAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %> because this week the designer house announced that lowering costs were called for in light of poor revenues and a weak stock price. Major cost cuttings hopes to save them in excess of $2 million.

Shares of HOT TOPIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HOTT)") else Response.Write("(Nasdaq: HOTT)") end if %> a speciality retailer of music-related merchandise, fell Friday, a day after the Pomona, California, company announced first-quarter sales rose by 72% and its net loss narrowed. The latest and previous-year figures for the quarters ended May 3 were that sales were $11.8 million, up from $6.5 million in the last quarter. Net income loss was ($110,000) down from ($168,000) and the net loss per share on almost 1 million more shares for the 1997 quarter was ($0.02) from ($0.05).

HOME DEPOT, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %> said on Wednesday it set a three-for-two stock split. To effect the split, the company declared a stock dividend of one half-share of common stock for each share outstanding, payable July 3 to shareholders as record as of June 12. The company also said in a news release that it increased its quarterly cash dividend to $0.075 per share from $0.06 per share. On a post-split basis, the dividend is equivalent to $0.05 per share, the company said.

Shareholders of REVCO D.S. INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RXR)") else Response.Write("(NYSE: RXR)") end if %> and CVS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVS)") else Response.Write("(NYSE: CVS)") end if %> have approved a proposed $2.8 billion takeover of Revco that would make the company the nation's second-largest drugstore chain.

Revco shareholders voted Wednesday at a special meeting in this Cleveland suburb. CVS shareholders approved the deal in a vote Tuesday at the company's annual meeting The Federal Trade Commission also must approve the deal. With $10.9 billion in sales, the combined CVS-Revco chain would be second to WALGREENS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAG)") else Response.Write("(NYSE: WAG)") end if %>, which had $11.8 billion in sales last year. CVS also would have about 4,000 stores.

On May 29, select KMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> stores in the Los Angeles, Manhattan and Detroit markets will feature the hottest toy since the Beanie Babies. "Everyone's looking for Tamagotchi, and Kmart has it," said Bill Anderson,Senior Vice President and General Merchandise Manager,"Our goal is to provide popular toys that are fun and educational at the low everyday prices our customers expect."

The total volume of Kmart's order and sales projections were not disclosed. Carrying this toy, which is in incredible demand, will get the buyers into the store, whether it will keep them around to buy other things in KMart will have to be seen.

ALTERATIONS

This week, Merrill Lynch & Company raised its rating of TOMMY HILFIGER, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOM)") else Response.Write("(NYSE: TOM)") end if %> from a near term accumulate to a long-term buy. Coverage was initiated by Brown Brothers Harriman & Company on the GAP, INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> with a short-term buy and TOYS R US <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOY)") else Response.Write("(NYSE: TOY)") end if %> had coverage also initiated with a buy from Jeffries & Company.

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

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