Discount store stocks emerge from recent drubbing

Discount Store News, July 17, 1995 by Neil Nordby

NATIONWIDE DSN REPORT - In an attempt to pull themselves up by their collective boot-straps, discount store stocks slowly and cautiously emerged from Wall Street's doghouse during the second quarter of 1995.

The result is best depicted in the performance of the Discount Store News Stock Index, which put an end to a six-month sell-off during the last quarter of 1994 and the first quarter of this year. The bottom line for the index read as follows: up 27.65 points, or 1.32%, en route to a close of 2117.71, even though the same challenges remained for retailers last quarter (i.e., too many discounters vying for consumers who are stretched thin on the spending front).

In stark contrast, strong earnings performances and the possibility of lower interest rates in the near future combined to push the Dow Jones Industrial Average and the S&P 500 to record highs of 4589.64 and 551.07, respectively, as of June 22. When the quarter came to a close, the Dow Industrials stood 398.41 points higher, or 9.58%, to 4556.10, while the S&P 500 gained 44.04 points, or 8.80%, to close at 544.75. Even the NASDAQ Composite got into the act as it raced ahead 116.24 points. or 14.22%, to close at 933.45.

CompUSA was one retailer that stood out from the pack last quarter. Since the stock fell to $6.75 Aug. 18, 1994, due to a poor earnings report (the company has since shown its ability to manage its costs and inventory as it recorded a fiscal third-quarter profit of $12.1 million back in April 1995), it has rebounded sharply to close June 30 at $33.25, up a whopping 375%. For the period from Dec. 30, 1994, to June 30, 1995, CompUSA's stock price soared a resounding 121.7%, and for the quarter just ended, its share price swelled from $18.13 to $33.25. The reason: the Dallas-based concern said its fourth-quarter sales shot up 20% to $689 million thanks to an 11.7% increase in same store sales for the 90-day period. The result: its share price was the best performer in the DSN Index and was the ninth-largest percentage-gainer on the New York Stock Exchange for the three-month period.

Bradlees, in stark contrast, plunged 80% last month and was the largest percentage-loser on the New York Stock Exchange and the second-largest percentage-casualty on the NYSE for the first half of 1994 (down 80.6%). The company's transgression last quarter: it filed for Chapter 11 protection after some suppliers refused to ship to the company amid fears they wouldn't be paid.

As Best Buy Co.'s rapid expansion produced higher sales, it said its earnings rose 10% in its fiscal first quarter ended May 27. The bottom line read as follows: Best Buy said net income rose to $4.67 million, or 11 cents per share, climbing up from $4.24 million, or 10 cents per share in the year-ago quarter. First-quarter sales for the Minneapolis-based retailer rose to $1.28 billion, for 213 stores, from $849 million, for 153 stores, in the year-ago quarter. Moreover, Saul Yaari of Piper Jaffray reiterated a "strong buy" rating of Best Buy. In our index, Best Buy leaped 5.0 points, or 23.12%, en route to a close of $26.63.

Fellow consumer electronics retailer Circuit City also reported strong financial results for its first quarter of 1995. Net income for the Richmond, Va.-based consumer electronics retailer was $24.6 million, or 25 cents per share, up from $19.7 million, or 20 cents per share, a year ago. According to L. Wayne Hood of Prudential, "Circuit City's first-quarter earnings per share were slightly better than expected." Revenues rose 33% to $1.39 billion from $1.05 billion in the year-ago quarter. Amid the strong sales and lower expenses, the company boosted its quarterly dividend to 3 cents per share from 2.5 cents per share, which is payable July 14 to shareholders of record June 29. In the DSN Stock Index, Circuit City rose 5.25 points, or 19.91%, to close at $31.63.

On the sell side of the ledger, Fretter stumbled and tumbled 1.13 points, or 37.5%, to $1.88. The decline was in part attributed to its 8.6% decrease in sales to $166 million for its first quarter ended April 30, 1995. The company closed two stores during the quarter. It announced a net loss of $4.35 million, or 41 cents per share, compared to a net loss of $4.13 million, or 39 cents per share, for the first quarter of 1994.