Three Retail Stocks to Consider

By Charles Rotblut

Highlighted stocks include AutoZone (AZO), GameStop Corporation (GME) and Cracker Barrel Old Country Store, Inc. (CBRL).

In the midst of an ongoing recession, Retail-Wholesale is one of the top-ranked sectors. Though this sounds paradoxical, there are 3 reasons that justify this.

The first has to do with timing. Many retailers operate on a February-January calendar year, which means they report earnings later than most companies.

To the extent that analysts revise estimates higher in response to earnings reports, those late reporters receive a better Zacks Rank. The Zacks Rank considers changes made to earnings estimates over both the last 60-90 days and over the last 30 days.

Secondly, as Rob Plaza discussed Tuesday, expectations were overly pessimistic, making it easy for some companies within the retail sector to clear the hurdle by a seemingly wide margin.

Finally, there were a few companies in the sector with good earnings reports.

Economy Helping Auto Part Sales

AutoZone (AZO) is a good example. Wednesday, shares of the auto parts retailer soared after the company reported bullish results.

Fiscal second-quarter earnings totaled $2.03, 18 cents above expectations. Net sales reached $1.4 billion, aided by a 6% jump in same-store sales.

The company is benefiting from the decline in car sales. Consumers are keeping their cars longer and, as a result, are spending on maintenance. (After all, it's hard to get a job if you can't make it to the interview.)

The stock had soared by more than 50% from its November lows prior to the earnings report, so there was not much room for error. Yet, AZO performed and was rewarded with a new 52-week high Wednesday, making it a Zacks Rank top performer.

AutoZone's positive surprised followed good earnings reports from 2 of its competitors, Advance Auto Parts (AAP) and O'Reilly Automotive, Inc. (ORLY).

Video Games Still Selling

Another retailer that has thrived in the face of the recession is GameStop Corporation (GME).

The company recently revised its fourth-quarter guidance to the high-end of the previous range. The world's largest video game reseller expects earnings to have totaled between $1.33 and $1.34 per share. Same-store sale are estimated to have risen by 9.6%.

This year, GME thinks it can achieve comparable same-store sales growth between 4% and 6%, which would be impressive given the maturity of the current gaming console systems.

Though the company did not provide an EPS projection, half of the 16 covering brokerage analysts raised their fiscal 2010 forecasts in response. The consensus earnings estimate now calls for fiscal 2010 profits to total $2.83 per share, which would be an 18% increase over fiscal 2009.

GameStop is scheduled to report in mid-March.

Restaurants Not As Bad As Feared

On the other hand, some companies within the retail sector simply have fared better than analysts feared. This was the case with Cracker Barrel Old Country Store, Inc. (CBRL).

The chain earned 81 cents during its fiscal second-quarter, 6 cents more than brokerage analysts had projected. Though that sounds good, revenues did decline. Same-store restaurant sales were 1.5% lower and same-store retail sales contracted 7%.

CBRL's guidance, however, was good, all things considered. The company reiterated its fiscal 2009 guidance for earnings of $2.65-$3.00 per share.

This was important because analysts had been lowering their full-year projections prior to the release of earnings. During the past few weeks, analysts have reversed course, and the consensus earnings estimate has risen by 12 cents to $2.68 per share.

Brokerage analysts have also recently raised their full-year profit forecasts on Papa John's International, Inc. (PZZA) and Texas Roadhouse, Inc. (TXRH).

Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Sector Rank as of Mar 3
Sector	This Week's Zacks Rank	Last Week's Zacks Rank	FY09 Revisions Ratio	FY09 Estimates Revised Up	FY09 Estimates Revised Down
Medical	2.60	2.61	0.81	593	730
Retail-Wholesale	2.88	2.94	0.50	296	595
Computer and Technology	2.88	2.89	0.34	513	1498
Aerospace	2.98	2.98	0.30	30	101
Consumer Discretionary	2.98	3.00	0.27	158	587
Utilities	2.99	2.97	0.29	90	314
Business Services	3.01	3.04	0.32	77	243
Consumer Staples	3.01	3.00	0.32	121	380
Construction	3.16	3.04	0.28	58	210
Oils-Energy	3.18	3.21	0.26	283	1070
Transportation	3.21	3.20	0.15	47	311
Industrial Products	3.26	3.27	0.17	66	389
Auto-Tires-Trucks	3.26	3.24	0.12	16	137
Finance	3.28	3.28	0.17	282	1618
Basic Materials	3.28	3.27	0.32	114	360
Conglomerates	3.30	3.18	0.16	8	50

Comments

[thomas728:]

And may I add HOTT in "fashion" retail.

Performing very well in dreadful sector.

Mar 05 11:02 AM

[Chris coxbl...:]

HOW come nobody brings up the point that AZO is functionally insolvent

FROM recent release:

Selected Balance Sheet Information
(in thousands)
Feb 14, Feb 9, August 30,
2009 2008 2008
---------- ---------- ----------

Cash and cash equivalents $ 107,973 $ 93,465 $ 242,461
Merchandise inventories 2,190,198 2,068,483 2,150,109
Current assets 2,580,867 2,356,644 2,586,301
Property and equipment,
net 2,267,404 2,204,102 2,289,656
Total assets 5,235,085 4,938,397 5,257,112
Accounts payable 1,974,747 1,842,951 2,043,271
Current liabilities 2,468,682 2,325,222 2,519,320
Debt 2,690,755 2,095,000 2,250,000
Stockholders' equity (187,302) 282,233 229,687
Working capital 112,185 31,422 66,981

NOTE the equity column

nocache-phx.corporate-...=

Mar 07 12:17 PM

[Chris coxbl...:]

and they had negative cash flow as well...they also borrowed money to buy back stock...seems a bt fishy

Mar 07 12:18 PM