July 10, 2009
Retailers with a value message showed signs of strength on Thursday even though overall June sales were a bit of a disappointment.
Sales at stores open at least a year, or same-store sales, fell 4.9 percent in June according to the Thomson Reuters index. But a handful of companies posted stronger sales, including TJX Cos Inc, which runs discount-oriented chains such as T.J. Maxx.
The Standard & Poor’s retail index is already up 11 percent this year and rose less than 1 percent on Thursday, while the S&P 500 has fallen nearly 3 percent in 2009.
Have investors made all of the money they can betting on retail’s rebound following a rough 2008? Is there more room for growth?
“I would say look at value, look at consumables and those are really the two major themes,” said Sarah Henry, a retail analyst at MFC Global Investment Management. “I think there’s some more opportunity there left this year.”
“There are clear market share beneficiaries, the big one this morning, by far, was T.J. Maxx, you can see how powerful it is. And of course yesterday we saw Family Dollar really performing very well in this environment,” Henry said.
Retailers with better balance sheets and cash flow have been able to squeeze some concessions on costs from vendors, a move mentioned by Family Dollar and alluded to by Target Corp, she said.
“There’s a meaningful earnings driver here in companies that are more flexible with their cash flow,” she said, adding that others such as TJX and Wal-Mart Stores Inc could see similar benefits.
NO REAL DEALS FOR NOW
“Is this the best time to buy retail stock? Probably not. The consumer remains very weak. There are still limited signals there will be a return to growth,” said Eric Beder, an analyst with Brean Murray Carret, noting that investors need to judge on a company-by-company basis.
Short-term traders have to be particularly careful, he said.
“If you’re trying to trade these names you’ve got to have a really tight trigger finger. If you’re looking for longer plays there are a lot of strong companies trading near their low … they have potential to drive upside when the consumer comes back,” Beder said.
Short-term investors need to look at sectors that provide good value, Beder said, citing Aeropostale Inc and Family Dollar as two stocks that benefit from consumers’ focus on affordable goods.
Longer-term investors need to look at the concept and quality of management, he said, citing Urban Outfitters Inc, Warnaco, True Religion and Guess? Inc as companies with “significant potential growth” once the downturn is over and “lots of cash.”
“People always say if you are looking to buy stocks, if you are an investor in the industry, sometimes the best time to buy is in the worst of times. (You) say, ‘how low can it go?’ Problem is, it could stay still for a long time,” said Al Ferrara, director of the retail practice at BDO Seidman.
“I would be neutral on the retail sector. I wouldn’t be an aggressive buyer. Whatever you have, hold. I wouldn’t be putting more money into the sector now. I don’t think the worst is over for it.”
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