Rob Black's Retail Stock Report

by: Rob Black

For years, we have seen Coke (NYSE:KO) rebalance power with its bottlers, to the point where many bottlers now have little power and either poor or declining returns. This has had many unintended consequences, including mediocre growth expectations for Coke and a bottling base in which Coke’s best risk takers are unwilling to make extraordinary investments behind Coke’s brands.

The 3rd quarter marks a seminal moment in the history of The Coca-Cola Company and of its bottlers, as Coke has begun to devolve power to bottlers in Latin America for the first time in decades, and will now share decisions and profits that were long the sole domain of Coke. This marks improvement for the entire system.

Target (NYSE:TGT)
will report October comps of 3-5%, within its original plan, versus a 5.7% comparison. Mid-month, the company said comps were tracking in line with plan. In October 2005, comps were in line with plan for the first two weeks of the month but trended at the high end of plan for the last two weeks. Target faces the most difficult comparisons in women’s apparel, boys’ and girls’ apparel, household/personal/baby, and shoes, which were the top-performing categories last year.

Home was still a weak category (it had been lackluster last year as well); but continue to look for pockets of improvement in areas such as domestics and home décor, where the retailer introduced a new line from designer Victoria Hagan (Perfect Pieces). Women’s apparel should get a boost from the new Go International line from Behnaz Sarafpour, which officially debuts on November 1 (but might be set in stores a little earlier). Toys, which were a top category in September 2006, could continue to see strength in October as we head into the holiday season. In electronics, Target introduced extended service plans with relatively simple pricing compared to those offered at Wal-Mart; a year after WMT introduced them, the extended service plans have an attach rate in the mid-20s.