Retail Bright Spots This Holiday Season

I know that we are in the midst of an economic recession and analysts are expecting a terrible holiday season for retailers. But I think that some retailers actually do okay. Will people shop as much as in years past? Obviously not. But I think the drop off will not be as bad as expected. The industries hardest hit by the downturn will be luxury items and electronics. Retailers such as Saks 5th Avenue (SKS) and Nordstrom (JWN) will find this holiday season particularly rough. Electronics retailers like Best Buy (BBY) and Circuit City (CCTYQ.PK) have so much inventory on hand that they are being forced to slash prices as never before. Even with the price cuts, big ticket items such as flat screen televisions, laptops and appliances will probably have the greatest drop off in purchases.

But I think there could be some bright spots in retail. My opinion is that lower prices and new programs will encourage some consumers to shop places they have shunned in the past. I think that retailers like Sears and Kmart (SHLD) may actually benefit this holiday season due to bold programs. Struggling retailers Sears and Kmart have brought back layaway programs, extended business hours and are offering major price discounts. I think this a smart move. Any increase in sales no matter how small could be the difference between surviving this Christmas season and going out of business. Layaway programs may entice credit weary borrowers to purchase items that they otherwise would not have purchased this year.

Wal-Mart (WMT), the nation’s number one retailer, will continue to thrive. Discount retailers like Family Dollar (FDO), 99 Cents Store (NDN) and Dollar Tree (DLTR) will continue to profit as consumers downsize. Clothing retailers like TJ Maxx and Burlington Coat Factory have also implemented layaway programs that should help sales. I also expect that niche items will perform well. Small ticket electronic items such cell phones, video games and mp3 players(iPods) will continue to sell. I think that video game demand will remain high as parents shop for children this holiday season. I expect Apple (AAPL) and Gamestop (GME) to do well despite low expectations.

Disclosure: no positions

Comments

[107Sid:]

TJX and Ross Stores should also fare better than most.

2008 Nov 30 12:16 PM

[brombonz:]

"99 Cents Store (NDN) ....will continue to profit as consumers downsize."

In the last three quarters, NDN has cumulative losses of $21.4 million before tax credits: $12.6 million in the Sept. quarter and $.7 million and $8.1 million in the two preceding quarters. After tax adjustments that works out to cumulative losses of $15.3 million (by quarter $9.4 million, $1.5 million and $4.4 million.(Data from Morningstar via Yahoo! Finance)

In what sense do you employ the phrase "continue to profit?"

2008 Nov 30 02:33 PM

[brombonz:]

Correction: Data in the previous post did originate with Morningstar, but via MarketWatch.com, not Yahoo! Finance.

2008 Nov 30 02:55 PM

[Mark Riddix:]

By profit, I mean that I am expecting them to benefit from this recessionary environment. The 99 cents has seen an increase in comps, increasing revenue and has virtually no long term debt. The company's earnings were good except in Texas. The 99 cents store is closing all of its Texas locations because they are unprofitable. They incurred charges relating to the closing of the Texas locations(leasehold fees, impairment charges). Gross profit margins outside of Texas were 39.2% Comps rose almost 5% and retail sales rose 9%.


On Nov 30 02:33 PM brombonz wrote:

> "99 Cents Store (NDN) ....will continue to profit as consumers downsize."
>
>
> In the last three quarters, NDN has cumulative losses of $21.4 million
> before tax credits: $12.6 million in the Sept. quarter and $.7 million
> and $8.1 million in the two preceding quarters. After tax adjustments
> that works out to cumulative losses of $15.3 million (by quarter
> $9.4 million, $1.5 million and $4.4 million.(Data from Morningstar
> via Yahoo! Finance)
>
> In what sense do you employ the phrase "continue to profit?"

2008 Nov 30 06:38 PM

[brombonz:]

I'm aware of the Texas situation. It has not been the only problem. I've followed the company since its IPO. It would be correct to say it is positioned properly to benefit from economic bad times. It is another thing to say management can turn that into profit, and increasing profit at that. I don't know that they have overcome their warehouse/distribution problems. I lived in L.A. for 35 years and am quite familiar with the stores. I last shopped there in the summer of 2006 while vacationing from my current home in Florida. I've been a shareowner at various times, as recently as earlier this year. Since I liked the stores (all the locations I've been familiar with, have been jammed with shoppers), the great appeal to me had been the exceedingly small store base compared with DLTR, FDO and the former DG, and the potential for national expansion. The failure in TX has lessened, if not eliminated, that appeal. It remains to be seen if management can transcend its previous shortcomings and turn steady, possibly growing, revenues into profit.


On Nov 30 06:38 PM Mark Riddix wrote:

> By profit, I mean that I am expecting them to benefit from this recessionary
> environment. The 99 cents has seen an increase in comps, increasing
> revenue and has virtually no long term debt. The company's earnings
> were good except in Texas. The 99 cents store is closing all of its
> Texas locations because they are unprofitable. They incurred charges
> relating to the closing of the Texas locations(leasehold fees, impairment
> charges). Gross profit margins outside of Texas were 39.2% Comps
> rose almost 5% and retail sales rose 9%.

2008 Dec 03 10:07 AM

[brombonz:]

Oh, and my question was how do you explain the phrase "continue to profit."
Explaining the word "profit" is a snap. But, after all, isn't it what remains after deducting expenses, including those resulting from bad decisions and/or poor execution?


On Dec 03 10:07 AM brombonz wrote:

> I'm aware of the Texas situation. It has not been the only problem.
> I've followed the company since its IPO. It would be correct to say
> it is positioned properly to benefit from economic bad times. It
> is another thing to say management can turn that into profit, and
> increasing profit at that. I don't know that they have overcome their
> warehouse/distribution problems. I lived in L.A. for 35 years and
> am quite familiar with the stores. I last shopped there in the summer
> of 2006 while vacationing from my current home in Florida. I've been
> a shareowner at various times, as recently as earlier this year.
> Since I liked the stores (all the locations I've been familiar with,
> have been jammed with shoppers), the great appeal to me had been
> the exceedingly small store base compared with DLTR, FDO and the
> former DG, and the potential for national expansion. The failure
> in TX has lessened, if not eliminated, that appeal. It remains to
> be seen if management can transcend its previous shortcomings and
> turn steady, possibly growing, revenues into profit.

2008 Dec 03 10:12 AM

[Mark Riddix:]

The past quarter the company had a 2 million dollar profit compared to a 4 million dollar loss previously. The company would have been profitable if not for the losses from Texas. The higher gross margins are encouraging because it demonstrates that management is becoming increasingly efficient. The company is getting a better handle on operating expenses. Distribution and transportation costs have remained flat.
I can't speak for the reasons that the company's strategy failed to work in Texas. Management has to be held accountable for that. I do take solace in the fact that 90 percent of their revenue is generated outside of Texas.


On Dec 03 10:07 AM brombonz wrote:

> I'm aware of the Texas situation. It has not been the only problem.
> I've followed the company since its IPO. It would be correct to say
> it is positioned properly to benefit from economic bad times. It
> is another thing to say management can turn that into profit, and
> increasing profit at that. I don't know that they have overcome their
> warehouse/distribution problems. I lived in L.A. for 35 years and
> am quite familiar with the stores. I last shopped there in the summer
> of 2006 while vacationing from my current home in Florida. I've been
> a shareowner at various times, as recently as earlier this year.
> Since I liked the stores (all the locations I've been familiar with,
> have been jammed with shoppers), the great appeal to me had been
> the exceedingly small store base compared with DLTR, FDO and the
> former DG, and the potential for national expansion. The failure
> in TX has lessened, if not eliminated, that appeal. It remains to
> be seen if management can transcend its previous shortcomings and
> turn steady, possibly growing, revenues into profit.

2008 Dec 04 06:49 PM