Retailers: The Good, The Bad, The Indifferent - Barron's

Barron's takes a look at retailers, who are - as we know - getting killed this holiday season. Consumer spending will likely remain anemic well into 2009, sending more of the group to bankruptcy court to join peer Circuit City Stores (CC).

Still, not all retailers are equally poorly dressed for the coming winter. Specifically, those with tightly knit balance sheets and warm relationships with financiers will likely weather the storm winds, and allow them to participate in the ensuing recovery. Hence:

Barron's recently examined the balance sheets of a host of publicly traded U.S. retailers. We divided the companies into four categories -- those in excellent, good, fair and poor financial condition, based in part on ratios of debt to Ebitda, or earnings before interest, taxes, depreciation and amortization, and interviews with credit analysts.

• Companies in excellent condition: Abercrombie & Fitch (ANF), Amazon.com (AMZN), American Eagle Outfitters (AEO), Bed Bath & Beyond (BBBY), Coach (COH), Costco (COST), Family Dollar Stores (FDO), Nike (NKE), Wal-Mart (WMT). Of them, COST looks pricey at 17x earnings, while NKE and COH are "especially attractive" given their lack of debt, moderate multiples, and strong outlooks. Of the teen retailers (AEO, ANF), one hedge fund manager prefers AEO because of its more reasonable price tags, a good fit for the nouveau frugal teen.
• Good condition: Best Buy (BBY), Gap (GPS), J.C. Penney (JCP), Kohl's (KSS), Target (TGT), TJX Companies (TJX). JCP is cheaper than KSS. BBY should benefit from CC's bankruptcy filing, but not necessarily RSH.
• Fair condition: Jones Apparel Group (JNY), Limited Brands (LTD), Macy's (M), Nordstrom (JWN), RadioShack (RSH), Saks (SKS), Sears (SHLD). Macy's debt, at 16%, might be a better bet than its stock. SHLD is in a precarious position, due to its upcoming debt maturities, failure to come up with a turnaround plan, and aggressive buybacks. Gimme Credit says it's most worried about SHLD, LIZ and JNS.
• Poor condition: Bon-Ton Stores (BONT), Charming Shoppes (CHRS), Dillard's (DDS), Liz Claiborne (LIZ), Talbots (TLB). Don't bother bottom fishing - these stocks are heavily leveraged and will limp along, at best.

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• Jake Taylor picks three retailers for a tough 2009.
• Bill Zielinski says there's an optimistic side to all the doom and gloom about retailers.

Comments

[Market Folly:]

interesting list for sure. AEO has had a pristine balance sheet through all of this, but then again I could have said the exact same thing when its shares were trading around $26. Unfortunately, I think the consumer dies even more in '09 and retail is a short as a whole. long a few select players as a hedge, like WMT or MCD.

wrote about this a while ago here: www.marketfolly.com/20...

2008 Dec 21 06:56 PM

[The_Gambler:]

Interesting report by Barron's about retail for the holidays. Very seldom do companies with better fundamentals go "up", but I will put all of them on my watch list. The real answer is in the charts if u know how to read them. Few really do.

2008 Dec 21 11:20 PM

[ChipSeal:]

Missing from the list: ZLC and HOG. The luxury retailers will be hit the hardest, good balance sheets or not.
All will be reducing operations in 2009, precipitating a crisis at malls and commercial REITs.

2008 Dec 22 11:08 AM