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<< Return to Part V

As we enter into this Christmas season, that can only mean one thing: Shopping. This article is meant to give a personal perspective of how the retail sector is shaping up for this year and into the future. For this experiment and research I have used the closest mall in proximity to me, the Woodland Mall.

This mall, owned by Pennsylvania Real Estate Trust, has been open since 1968. Over 100 stores, restaurants, and kiosks operate in 1.1 million square feet. Many of the stores are privately owned or are small, local players and have been left out of this article. Let’s take a look at some of the stores entering their busiest time of the season.

All yields, share prices, and analysts’ estimates are taken from Yahoo Finance upon market close Friday, November 25. Current and next year's earnings are analysts estimates for the current fiscal year and the following one. Earnings are listed on a per-share basis.

Restaurant: Dairy Queen, a subsidiary of Berkshire Hathaway (NYSE:BRK.B)

Dairy Queen is home of the Blizzard, an ice cream treat consisting of candy or toppings mixed into soft-serve. The company sells ice cream and frozen treats. Most locations, like this one, also offer a small selection of hot food like hot dogs and fries.

  • Competitors: Ben and Jerrys (NYSE:UL), Cold Stone Creamery (Private)
  • Share Price: $72.89
  • Dividend Yield: 0
  • Number of Stores: 5700 (as of 2010)
  • Recommendation: Buy

Dairy Queen stores are a small portion of this Warren Buffett-led conglomerate. The company also owns Geico, Fruit of the Loom, Russell Corporation, Clayton homes, NetJets, Helzberg Diamonds, and See’s Candies. The company is well diversified across many branches of business and has weathered any economic trouble over the years. One of Berkshire’s best investment strategies is owning large portions of publicly traded companies. Among the companies that Berkshire has large investments in are: American Express (NYSE:AXP) 12.6%; Coca-Cola (NYSE:KO) 8.6%; Kraft Foods (KFT) 5.6%; and Wells Fargo (NYSE:WFC) 19.0%.

Restaurant: Red Robin (NASDAQ:RRGB)

Red Robin is a large chain of restaurants across the company mainly focusing on the selling of burgers. The company also offers bottomless steak fries and many other dishes.

  • Competitors: Applebees (DINE), Chilis (NYSE:EAT), Ruby Tuesday (NYSE:RT)
  • Share Price: $24.22
  • Current Earnings: $1.51
  • Next Year Earnings: $1.80
  • Dividend Yield: 0
  • Number of Stores: 460 (as of 10/03/11)
  • Recommendation: Buy

I have to recommend shares of Red Robin at this level. The company has actually beat analysts’ earnings estimates four straight quarters. As food costs have risen, the company has cut overhead costs and labor costs to help retain its profit. In the last quarter same store sales were up 2%, and the company has predicted same store sales growth for the current quarter. This specialty burger chain has plenty of room for expansion and has begun to sign more franchises than company owned stores as it expands across the nation.

Restaurant: Starbucks (NASDAQ:SBUX)

Starbucks is the leading free-standing coffee store in the world, and is widely recognized. The company makes money on people’s addiction to coffee through its wide range of offered products.

  • Competitors: Dunkin Donuts (NASDAQ:DNKN), McDonalds (NYSE:MCD), Caribou Coffee (NASDAQ:CBOU)
  • Share Price: $40.84
  • Current Earnings: $1.83
  • Next Year Earnings: $2.21
  • Dividend Yield: 1.6%
  • Number of Stores: 6705 Company Owned, 4082 Licensed
  • Recommendation: Hold

It’s hard to believe that shares of Starbucks traded below $10 in 2009. Since that time they have recovered nicely as the company slowed down on domestic expansion to focus on redesigning stores to increase sales and international expansion. I think shares are fully valued or overvalued currently and would not be a wise investment at this level.

Summary

  • Dairy Queen, $72.89, Buy
  • Red Robin, $24.22, Buy
  • Starbucks, $40.84, Hold

Continue to Part VII >>

Source: Hitting The Mall For The Holiday Season, Part VI: Restaurants