 Weekly Retail Archive
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Retail Industry Update
by Risa Kaplan (TMF Style)
SAN FRANCISCO, CA (June 26, l997) -- LJR Redbook Research's latest indicator of national retail sales shows sales up 1.7% in the first two weeks of June from May. The report also shows seasonally adjusted sales in the two-week period up 8.2% from the same period in 1996. LJR Redbook staff said on an unadjusted basis, sales in the week ended June 14 were up 7.7% from 1996. Redbook staff also said sales of hot weather commodities were below expectations, but Fathers Day sales were generally good and in line with plan.
WILL YOU STILL LOVE ME WHEN I AM 74? 45? 16?
A recent PaineWebber symposium focused on the demographics of who will be spending money as we head into the 21st century. The changing U.S. population and its influence on retail, health care and consumer product companies were the focus of Paine Webber's latest investment theme, Demogrowthics. Demogrowthics showed that the consumer is once again king, despite dire predictions less than two years ago that the future of the U.S. consumer seemed bleak.
Demogrowthics examines three rapidly growing groups -- aging baby boomers, teen-agers and the 75-plus set -- and concludes that companies providing goods and services to these demographic segments will likely benefit from these overall population shifts. For retail this helps identify demographic segments that are growing : aging baby boomers, those Americans 45-54, who spend heavily on recreation, entertainment, electronics and savings products; Generation Y, current teen-agers, who have $100 billion in annual spending power; and senior Seniors, those over 75 who are heavy consumers of health care products and services.
Last week RITE AID CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAD)") else Response.Write("(NYSE: RAD)") end if %>, the nation's largest retail drugstore chain, posted an 60% increase in earnings before items for the latest quarter, due to strong sales. Net income for the first quarter ended May 31 was $68.2 million, or $0.56 a share, compared with an operating net of $42.6 million, or $0.51 a share in the year-earlier quarter. Rite Aid's earnings for the latest quarter were a penny above the $0.55 a share mean estimate of 12 analysts surveyed by First Call.
GENOVESE DRUG STORES.,<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDXA)") else Response.Write("(NYSE: GDXA)") end if %> based in Melville, N.Y., announced Monday a 17% increase in its quarterly dividend to $0.07 a share from $0.06 a share. Genovese, which owns a chain of 114 general merchandise stores, said the dividend is payable July 8 to shareholders of record on July 1. There are also reports floating around the street that Genovese may be a candidate for a takeover or buyout by another company. News reports have mentioned the usual suspects, Rite Aid Corp., WALGREENS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAG)") else Response.Write("(NYSE: WAG)") end if %>, CVS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVS)") else Response.Write("(NYSE: CVS)") end if %>, and J.C. PENNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %> as companies that could be interested in acquiring Genovese. As noted in a June 16th Dow Jones Newswire story an S&P Equity Group investment officer David Braverman said "The rumors are because of all the consolidation in the industry," whether they're true or not - I haven't the foggiest."
Genovese shares have risen sharply since April when rumors began circulating On April 1, Genovese shares traded as low as $11.875. Today the shares closed at $20 3/8.
DRUG EMPORIUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DEMP)") else Response.Write("(Nasdaq: DEMP)") end if %> a Columbus, Ohio-based operator and franchiser of discount drug stores, said Monday fiscal first-quarter net rose 5.4% while sales increased 1.2% compared with a year ago. Comparable-store sales declined 1% in the quarter, Drug Emporium said. The company said its operating income rose 12%, "a strong improvement in operating income reflective of the many changes that have been in progress over some time." Shares closed at $4 7/8 down 1/8.
This week teenage retailer GADZOOKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: Gadz)") else Response.Write("(Nasdaq: Gadz)") end if %> stock lost more than 40% of its value Wednesday after the specialty apparel retailer said second-quarter earnings won't meet analysts' estimates of $0.25 a share.
In the second quarter ended July 27, 1996, Gadzooks reported net income of $0.18 a share on sales of $28.5 million. The retailer also said it expects second-quarter sales will be lower than analysts' expectations. Trading in the company's shares halted briefly on the news, then resumed late in the afternoon. At the close Wednesday, shares were off $15.50, or 44%, at $20.125. Today they closed at $20 1/16 down $1/16 on heavy volume. An excellent explanation in detail may be found in an analysis written by Randy Befumo in Wednesday's Evening News dated June 25, 1997.
REFUNDS, RETURNS and EXCHANGES
As I have written about in previous updates, PIER ONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PIR)") else Response.Write("(NYSE: PIR)") end if %> has changed its merchandise recently and is appealing to more than the incense brigade. Last week, Pier 1 announced it plans to open 55 new stores this year in the U.S. and Canada and 65 or more stores a year for the next three years.
The company has the ability to open an additional 400 stores in the U.S. and Canada, on top of its current 670 stores, said Pier 1's Chairman and Chief Executive Clark Johnson. He also said he's comfortable with analysts' mean earnings estimates. Analysts surveyed by First Call estimate Pier 1 will earn $0.31 a share for the second quarter and $1.29 for the fiscal year ending in February 1998.
The company is hoping that new products, bridal registry, improved credit card profitability and remodeling of stores will help Pier 1 Imports boost sales 12% to 15% a year over the next three years, increase same-store sales 6% to 7%, and pump up its bottom line 15% to 18%. The combination of a strong market for home furnishings, a higher income customer base, effective network television advertising, a highly desirable product mix, strong internal systems and positive sales on the company's private level credit card were given as the reason for the boost in sales.
The company has had double-digit same-store sales growth for nine quarters in a row on average and they expect to have double-digit sales growth again in this quarter. Piper Jaffray Inc. analyst Alan M. Rifkin expects the acquisition to add two cents a share to 1997 and four cents to five cents to his 1998 estimate.
In other developments, Pier 1 announced today a 3-for-2 stock split of its common shares and a 30% effective increase in the company's quarterly cash dividend on the post split shares.
WET SEAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WTSLA)") else Response.Write("(Nasdaq: WTSLA)") end if %> plans to open more than 90 stores over the next 18 months and is on track to open as many as 30 stores in fiscal 1997, the company said Tuesday. Wet Seal currently operates 365 stores selling casual apparel and accessories for teenagers. The company also said it is entering the catalog business and will mail the first catalog in the spring of 1998.
The hot summer movie Men in Black is arriving at a movie theatre soon. The featured actors Tommy Lee Jones and Will Smith have been outfitted with Ray Bans, manufactured by BAUSCH & LOMB, INC. ( NYSE: BOL). Will that help some of our sunglass companies? One retailer, SUNGLASS HUT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAYS)") else Response.Write("(Nasdaq: RAYS)") end if %> is not seeing the world through rosy glasses as they announced the IRS will audit the company's 1992-94 tax returns. In its quarterly report filed Tuesday with the SEC, the sunglass retailer said the IRS is specifically concerned with certain deductions for noncompete agreements and intercompany pricing matters regarding the company's foreign subsidiaries.
The company said it believes its positions in the returns are supportable, and it doesn't foresee the matter hurting its earnings.
ALTERATIONS
Gruntal & Co. downgraded its investment rating on shares of PAYLESS SHOESOURCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PSS)") else Response.Write("(NYSE: PSS)") end if %> to "buy" from "strong buy" based on price, according to a contact at the firm last Wednesday. The firm raised its 12-month price target to $58 from $54.
Brown Brothers Harriman & Co. analyst Donald Trott initiated coverage of TANDY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TAN)") else Response.Write("(NYSE: TAN)") end if %> with a short-term "hold" rating and a long-term "market perform" rating. Trott said he sees a 13% growth rate for Tandy and expects earnings to increase 16.2% this year and 14.2% next year. Trott also set a 12-month target price of $60 a share. Tandy shares trade around $56.25.
Rodman & Renshaw said it initiated coverage of FLORSHEIM INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FLSC)") else Response.Write("(Nasdaq: FLSC)") end if %> with a "buy" rating and set a $20 price target on the stock, based on the shares trading in line with the multiple assigned to the S&P 400 and the brokerage's 1998 earnings estimate on the company of $0.93.
SoundView Financial Group said analyst Tom Cal started coverage of COMPUSA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> with short- and long-term "hold" ratings. It estimated per share estimates of $0.96 for fiscal 1997 and $1.15 for fiscal 1998.
Prudential Securities analyst Wayne Hood downgraded his rating on DOLLAR GENERAL CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DG)") else Response.Write("(NYSE: DG)") end if %> to "hold" from buy due to the stocks valuation. Hood made no changes to his earnings estimates.
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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