Brighter holiday sales outlook imparts sheen to retail stocks


"Who am I? Why am I here?" That's what most American consumers seemed to be asking themselves the past several years as they walked warily through the doorways of the nation's retail stores. Too often, folks concerned about their jobs and the economy were "just looking." They weren't real consumers at all.

Early projections about holiday retail sales seasons are notoriously inaccurate. Nonetheless, the investment community believes pent-up demand, a more positive consumer attitude and tighter retailing cost controls will add up to a solid 1992 holiday sales season.

Prospects for decent sales gains are enough to have Wall Street happily embracing many retailing company stocks.

"Christmas never came last year, but I expect a 5 to 6 percent sales gain this year," predicts Margo McGlade, analyst with PaineWebber Inc. "Profit margins are under pressure, but retailers are adjusting their businesses taking that into account."

Clothing sales have emphasized low prices and value in recent years, but McGlade is convinced there will now be a move toward more fashion, evidenced by items such as vests, fashion skirts and urban "hip-hop" attire.

"We've had three rotten Christmases in a row, there's a new U.S. president and people are thinking maybe they won't lose their jobs after all," says Jennifer Uhrig, portfolio manager of the $81 million-asset Fidelity Select Retailing portfolio, up a strong 17 percent this year.

"Retailers and Wall Street are both reasonably optimistic, and inventories have been planned cautiously, so there aren't likely to be quite so many discounts as in the past several years."

Stock prices of many retailers have been prospering for months. That's been helped by good back-to-school sales and a pickup in shopping once the distractions of the election campaign ended, she adds.

But don't get carried away just yet. "I'm conservative about this Christmas, since indications of consumer confidence haven't proven to be a barometer we can rely on to forecast sales," says Jean O'Neill, analyst with Kidder, Peabody. "Furthermore, sometimes internal matters at individual companies matter more than industry and economic trends."

According to John Eade, analyst with Argus Research Corp., many changes that occurred during recession are likely to stick. For example, the continuing power of low price tags has been proved.

"Other important changes which must now be taken into account include technological advances in improving inventory control, the growth of specialty shops and a loss of influence by traditional shopping malls," says Eade.

Not all retailing stocks are loved equally. For example, a wait-and-see attitude toward the stock of Sears, Roebuck is espoused by McGlade, Eade and Uhrig. Patient investors should probably hold on, they believe, though it will take a while to make over the company's retailing operations to effectively attract both women and men shoppers.

The Gap Inc. is recommended for purchase by both McGlade and O'Neill. It has proved itself an innovative retailer of casual attire, not just jeans, in an atmosphere in which value is important.

Dayton Hudson is a favorite of Uhrig and Eade, more for its low-price Target and Mervyn divisions than its department stores. A resurgence of the California economy would help. Merry-Go-Round, a youth-oriented fashion company that suffered an earnings decline in its last fiscal year, is a pick of McGlade and O'Neill, especially for aggressive short-term investors who expect a rebound.

Toys R Us, benefiting from the closing of competitor Child World, excellent demographics for children's merchandise and international opportunities, is suggested by McGlade and Eade. Kmart, continuing its ambitious modernization program, and the Limited Inc., one of the largest firms in women's apparel, are additional Eade picks, though he warns of the Limited's stock volatility.

Uhrig favorites include Circuit City Stores in electronics and appliances; J.C. Penney, though its stock is somewhat pricy; the well-managed Service Merchandise catalog showrooms; and diversified retailer Woolworth Corp., which also owns Foot Locker.

The Clothestime Inc. for junior-sized women, Catherine's Stores in large-size apparel and the much-admired Wal-Mart Stores all merit buy recommendations from McGlade.

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