Stocks mauled by '90 bear market - New York Stock Exchange

Discount Store News, Jan 21, 1991 by Neil Nordby

Stocks Mauled by '90 Bear Market

NEW YORK -- Wall Street's 8-year-old bull market was officially corralled last year, and the resultant bear market left a rash of battered and beaten discount store stocks in its wake.

And no indicator felt the stinging effects of the market's sudden and powerful reversal last year more than the DSN Stock Index. The box score for the 61 retailing issues tracked was down a heart-pounding 330 points to close the year at 1266.05.

In other words, each discounter in our financial barometer spiraled downward an average of nearly 21%, highlighting their bearish performance in 1990.

The reasons for the downturn in retail stocks have been well documented: a weakening U.S. economy that officially slipped into a recession in the fourth quarter, although many regions were in a recession before that; brutal competition that forced dramatic price-slashing among retailers; and the uncertainty brought on by the possibility of war.

As a result of the above concoction, of all issues in our financial barometer, losers routed gainers by better than a 5-to-1 ratio.

A sampling of last year's winners and losers in the discount store sector includes:

* Wall Street's favorites: Investors were steadfastly bullish on those discounters who increased market share in this time of sluggish industry and national economic growth. In fact, those well-run retailers with tight cost controls should do well in a recession.

Which retailers, then, bucked the overall downtrend in DSN's Stock Index last year? Those with double-digit sales and earnings gains led the way.

CUC International took largest percentage-gainer honors last year after recording a stout 53.5% gain en route to a close of $22.25. The bottom line at CUC: third-quarter net income swelled to $4.77 million from $1.5 million in the year-earlier period. The strong earnings report card prompted numerous "buy" recommendations from Wall Street brokerage firms last year as a result.

Costco also took wing, soaring $13 a share, or 36.9%, to take largest dollar-gained honors of all the stocks tracked. Three factors pushed this stock higher in 1990: continued consolidation of warehouse clubs, strong demand for no-frills specialty retailers in today's recessionary climate, and a strong third-quarter earnings report card (3rd quarter profits soared to $21.9 million from $11.9 million in the same period in 1989).

Good Guys also notched a major gain last year, as its stock price vaulted 46.4% to $17.75. And in what sounds like a broken record, strong sales and profits were the reason. The San Francisco-based electronics retailer said fiscal first quarter sales for the three-month period ended Dec. 31, 1990 soared 43% to $124.5 million vs. $87.3 million. Same store sales were up 7% during that same period. As a result of these strong numbers, Tiger Management increased its stake in the retailer to 6% of the total shares outstanding.

Venerable Wal-Mart exemplified the type of company that can stage dramatic growth rates despite less-than-voracious consumer spending and economic turmoil. And its stock price reflects its ability to grow despite macro economic trends that have hurt other national retailers. Translation: Wal-Mart posted yet another strong year, as it chimed in with impressive numbers of its own both in sales and in stock appreciation. Its box score: Wal-Mart's stock climbed 35% to $30.25. Some of Wal-Mart's other vital signs last quarter include: December and November sales were up 28% and 22%, respectively, over year-earlier results, while net income for the third quarter soared to $7.9 million from $6.2 million last year.

Separately, Wal-Mart, in a bid to increase its presence in the warehouse club field, agreed to buy Wholesale Club for $21 a share. Wholesale Club, as result, was also a strong performer last year, as its stock price soared 32.3 percent to $20.50. * And forlorn: No retailer felt the unkind glare of last year's sell-off more than Ames. The bottom line for this troubled retailer: its stock price spiraled downward to the tune of 95% before exiting the year at 56 cents a share. Ames started the year trading at a relatively stout $10.38 a share. Its misdemeanor: too much debt and an ensuing cash squeeze forced the company into Chapter 11 bankruptcy court protection in April. As a result, Ames was the worst performing retailer last year, and was the ninth-worst stock on the New York Stock Exchange for that period.

Investors adjusted Highland Superstores' shares downward by 71% to $1.25 in 1991.`Poor earnings prompted shareholders to become ex-shareholders en masse last year. The reason: the company posted a third-quarter loss of $4.8 million vs. a gain of $1.5 million in 1989. The company, which reached an agreement with lenders to defer reducing its line of credit, hired Lehman Brothers to explore all of its options, including ways to raise cash, a merger with another company, or the sale of all or parts of the firm.

Other stocks which fell victim to sell orders in 1990 were: