Retail Industry Update
by Risa Kaplan (TMF Style)

SAN FRANCISCO, CA (June 19, l997) -- U.S. chain store sales were unchanged in the week ended June 14 from the prior week, according to the seasonally adjusted BTM/Schroders weekly chain store sales index. Sales for the week were up 3.2% on a year-over-year basis, while the month-to-date index slipped 0.3% from the prior month. "Sales during the week, which led up to Fathers Day, began soft but improved by late in the week and were generally on- to slightly below-plan," the report said.

According to the indexes, sales of summer weather goods, such as fans and air conditioners, were below expectations, despite warming temperatures to seasonal levels. In discount stores, sales in women's apparel is lagging other items, such as childrenswear, menswear and fashion accessories. On the other hand, in the department stores and in the chain stores, women's apparel continues to do well.

SO WHERE IS THE MONEY?

The U.S. Golf Open merchandise tent last week looked more like a department store with sophisticated layout and 30 cash registers, and didn't have that souvenir feel at all.

As in all old-time establishments, some changes seem to move at a snail's pace, but the USGA has no problems keeping up with the times in order to improve the cash flow. Items on sale included the 1997 U.S. Open Computer Screen Saver and tailor-made, laser-engraved pictures. There was an entire section devoted exclusively to women's wear, featuring a three-piece golfing outfit for $248. One of the most popular items is the $17 bag towel -- all 17,000 were gone by Sunday. The No. 1 best-seller was the cheapest thing in the store, the $2 ball markers. All 20,000 were sold out. It was reported that the store expected to take in $6.5 million during the tournament.

In honor of the US Open, there are three golf companies involved in apparel that are worth looking at. ( Nike and Tiger Woods are examined in a special report this week in Fooldom 6/18/97 Nike 101 which is definitely worth reading. So let's swing into these three companies.

CALLAWAY GOLF <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELY)") else Response.Write("(NYSE: ELY)") end if %> designs and manufactures golf clubs. The company primarily sells its line of Big Bertha oversized metal woods and S2H2 conventional-style metal woods, irons, wedges, and putters. But this season, this company has decided to diversify and go into apparel and shoes. They presently are selling their merchandise exclusively in NORDSTROM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOBE)") else Response.Write("(Nasdaq: NOBE)") end if %>. For the three months ended March 31, l997, net sales rose 25% to $169.1 million. Net income rose 26% to $24.5 million. Revenues reflect increased sales of the Biggest Big Bertha Drivers and Great Big Bertha Fairway Woods. Earnings reflect increased gross margins and lower S/G/A expenses.The most noteworthy item is that this company has no debt. However the impact of sales in the area of apparel and shoes has not been seen yet. From a trend perspective, I have noticed that the new hot clothes being worn, not only on the links, but today by young boys who can afford it, is Callaway shirts. The stock closed today at $37 1/4.

Headquartered in Seattle, CUTTER AND BUCK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBUK)") else Response.Write("(Nasdaq: CBUK)") end if %> designs, sources and markets updated traditional men's sportswear and outerwear. It distributes its products predominately through golf pro shops and resorts, upscale men's specialty stores and direct sales accounts. The company has developed a colorful, innovative collection of high-quality sportswear targeted to the affluent 30- to 55-year old men's apparel market, projecting an updated American design evocative of a sporting lifestyle.

Cutter & Buck Inc. today reported record sales and profits for its fiscal year ended April 30, 1997. Net profits for the year ended April 30, 1997. tripled to $3.6 million, or $0.77 per share, compared to $996,000, or $0.29 per share, in fiscal 1996. Sales increased 115% in fiscal 1996. The 1997 per share results include the issuance of 1.45 million common shares in the company's secondary offering completed last December.

Net profits increased 269% to $0.42 per share, for the fourth quarter of fiscal 1997, compared to $0.16 per share, in the fourth quarter a year ago. Sales increased by 123% for the quarter compared to the same quarter of fiscal 1996.

The company says " Our success in the golf market has provided us with the opportunity to leverage the Cutter & Buck brand into European distribution and has given us a higher profile in our other market channels."

Gross margin increased in fiscal 1997 to 39.8% from 36.9% in fiscal 1996, and operating expenses decreased as a percentage of net sales to 29.1% in fiscal 1997 from 32.1% in fiscal 1996. The company reported that their margin improvement came through cost reductions achieved as a result of economies of scale, a realigned sourcing structure, and cost savings from in-house embroidery production. Internal embroidery and warehouse operations, which the company commenced in the first half of this year, were key elements in the execution of the highest volume sales quarter. The stock closed at $15 1/16.

ASHWORTH INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASHW)") else Response.Write("(Nasdaq: ASHW)") end if %> is a Southern California-based designer and manufacturer of golf-inspired sportswear distributed domestically and internationally in pro shops, resorts and upscale department and specialty stores.

On May 29, the company announced an improvement in financial results for the second quarter and first half ended April 30, 1997. Revenues benefitted from increased sales from golf pro shops, specialty and upscale department stores, and factory outlet stores. Earnings reflect managements cost control program and lower interest payments on fewer bank loans.

Consolidated net sales for the second quarter of fiscal 1997 increased 16.2% to over the same period the prior year. Consolidated net income increased 14.9%. Earnings per share increased to $0.23 per common share as compared to $0.21 per common share for the same period last year. Domestic sales increased 16.0% and foreign sales increased 17.0%.

Sales in Europe continued to grow through shipments from the company's subsidiary in England. The company's newly implemented in-store shop program has commitments for over 125 shops since the programs inception six months ago. At the end of today's session the stock was trading at $9 1/16.

REFUNDS RETURNS AND EXCHANGES

Two interesting developments in the Internet shopping world. JCPENNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %> launched a newly redesigned Internet store which can be found at http://www.jcpenney.com/shopping featuring over 2,000 products, an electronic order form, 19 print catalogs and many special online offers. One of the most noteworthy features of the new site is the electronic order form which provides JCPenney catalog customers with the ability to order any of the more than 90,000 products found in current JCPenney catalogs.

HSN INC.'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HSNI)") else Response.Write("(Nasdaq: HSNI)") end if %> Internet Shopping Network (ISN) this week launched an online auction site on the Web, competing for the dollars of high-tech consumers. The new site, scheduled to begin auctioning its first items Thursday, is further evidence of HSN Chairman Barry Diller's commitment to electronic commerce, executives said. It is located at http://www.firstauction.com and the companies hope to see revenues of than $30 million to $35 million its first year of operation.

ALTERATIONS

Salomon Brothers said it intiated coverage of TIFFANY & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIF)") else Response.Write("(NYSE: TIF)") end if %> with a "hold" rating.Tiffany's stock currently trades at 24 times at Salomon's 1997 earnings per share estimate of $2.00, which is a premium to its 15-20% long-term earnings growth rate.

Prudential Securities said analyst Wayne Hood cut his second quarter estimate on SEARS, ROEBUCK & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> to $0.73 a share from $0.76. Softer-than-expected sales of seasonal merchandise in April and early May was cited in the report. Hood's full-year 1997 estimate dropped to $3.50 a share from $3.55. The firm maintains a "hold" rating on the stock.

Bear Stearns upgraded CVS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVS)") else Response.Write("(NYSE: CVS)") end if %> to "buy" from "attractive".

Everen Securities raises its short-term rating on shares of auto parts retailer THE PEP BOYS ( NYSE: PBY) to "market outperformer" from "market performer".

PROFFITT'S (Nasdq: PRFT) announced that the company has applied for listing of its common stock on the New York Stock Exchange. The company anticipates that its shares will begin trading on the NYSE in early July under the symbol "PFT." The company's market capitalization has grown from $8 million to over $1 billion today. Proffitt's operates 175 stores in 24 states under the store names of Proffitt's, McRae's, Younkers, Parisian, and Herberger's. The company's annualized revenues are in excess of $2.3 billion.

Each week, I examine all aspects of the retail industry. I invite you to join me in the retail folder, located at the message boards called Industry and Market Analysis, for more in depth discussion of these and all retail issues!

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