ALSO
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Apparel Retailers
Hoping
For A Holly, Jolly Christmas
By Andrew Leckey
Latest
sign that the apocalypse is upon us:
Controversial bleached-blonde
rapper Eminem, currently starring in the hit movie 8 Mile,
is being counted on by Wall Street to boost clothing sales this
holiday season.
A prime beneficiary
is expected to be apparel chain Pacific Sunwear of California
Inc. (PSUN), whose d.e.m.o. stores in malls cater to the casual
urban and hip-hop style worn by America's latest magazine cover
boy.
Meanwhile, the chain's
other stores that bear its flagship Pacific Sunwear name are
expected to benefit from increased sales of beach attire popularized
by the young women surfers in the recent film "Blue Crush."
I mean, is this going
to be a hip holiday, or what? And some of you mistakenly thought
the recent rate cut by that fuddy-duddy Alan Greenspan of the
Federal Reserve would make the difference this year.
"The slowing of
big-ticket items such as cars and appliances sales is freeing
up dollars for smaller ticket purchases, such as apparel,"
believes Richard Jaffe, retail analyst for UBS Warburg in New
York, who is recommending the stock of not only Pacific Sunwear
but also the trendy Urban Outfitters Inc. (URBN) stores. "The
retailers with something unique, different or special this holiday
are the most appealing," says Jaffe.
Besides fashion trends
and a weak economy, retailers are focused on the 2002 calendar.
The fact Thanksgiving falls in the fourth week of November this
year, rather than the third week, frightened many stores into
early launches of heavy advertising, marketing, promotions and
price reductions. If the strategy works, it could mean merchandise
will be picked-over before last-minute shoppers arrive.
"I think that
the consumer will be spending this Christmas, with November/December
comparable store sales up 1.2 percent versus a decline of 4.5
percent for the same period last year," predicted Jaffe.
Stocks of retailing
companies rallied last spring, sold off dramatically in early
fall and have since rallied again. Jaffe is confident of their
upside potential, though analyst opinions are a mixed bag this
year and some are more cautious.
"Consumer confidence
isn't as strong as you'd like and the employment outlook isn't
as great as you'd like, but people still have the same people
they want to buy gifts for," acknowledged Marie Driscoll,
retail analyst with Argus Research in New York. "We're a
shopping society and, despite the shortened holiday season this
year, I wouldn't be surprised if the shelves are empty by the
end of the season."
No. 1 retailer Wal-Mart Stores Inc. (WMT), which boosted results of the entire industry last holiday season, will be hard-pressed to equal that record. Nonetheless, it's a quality stock worth buying, Driscoll added.
She recommends stock of moderately priced apparel chain Kohl's Corp. (KSS) because 45 percent of its stores were opened in just the last three years. Bed Bath & Beyond Inc. (BBBY) in domestic merchandise and Williams-Sonoma Inc. (WSM) in products for the home are other solid choices, she said.
"We think that the companies in the business of low prices will do well this holiday season," said Roz Bryant, retail analyst for Morningstar Inc. in Chicago, who considers off-price retailers TJX Companies Cos. (TJX) and Ross Stores Inc. (ROST) to be the pick of that litter.
Stock prospects of Kohl's are superior to those of the struggling retailing giants Sears, Roebuck & Co. (S) and J.C. Penney Co. (JCP), both of which are currently in turnaround mode, she said.
"Customers can expect to see a fair amount of discounting, though companies such as Abercrombie & Fitch entering the season with strength can maintain their pricing power because of strong brands and popularity," Bryant added. "Retailers have all maintained pretty conservative inventory positions throughout the year because they were burned to varying degrees with so much inventory last year."
According to the Boston-based First Call research firm, shares of other big retailers Target Corp. (TGT), Federated Department Stores (FD), The Gap Inc. (GPS) and Nordstrom Inc. (JWN) currently receive consensus "buy" recommendations from Wall Street analysts.
Additional Jaffe picks are the apparel retailer Limited Too Inc. (TOO) for girls ages eight to 14 who "have become more fashion conscious" and Limited Brands Inc. (LTD), which derives 40 percent of its earnings from Bath and Body Works, 40 percent from Victoria's Secret intimate apparel and the remainder from men and women's clothing.
Finally, The Men's Wearhouse Inc. (MW), which has captured market share over the past 10 years to become the dominant men's apparel retailer, is another Jaffe favorite. "Very quietly, men are coming back into the apparel market," he concluded. "Their spending declined over the last two years and we think there's now pent-up demand and enough new products to spur interest."
I guess not even Eminem can carry the entire holly, jolly season all by himself.
Editor's Note: Andrew Leckey's column "Successful Investing" appears regularly in the print edition of the Bull & Bear Financial Report. Leckey, author of six books on personal finance, offers Bull & Bear readers straightforward investment strategies that are valuable to sophisticated investors looking for immediate results, or readers building a nest egg.
