Discount stocks fall in '94 - discount stores

Discount Store News, Jan 16, 1995 by Neil Nordby

It was the worst of times for shareholders of discount store stocks in 1994. In fact, it was downright dangerous to one's financial health as 63% of the retailers tracked fortnightly in Discount Store New posted double-digit percentage losses for the 12-month period.

Just how bad was it? A quick glance at the performance of the Discount Store News Stock Index chart (see page 9) shows that the stocks in our industry, like geese trying to evade winter's grip, headed south in a hurry last year. When the books were closed on 1994 and the sell orders were swept from the floor, here is how our industry fared: the Discount Store News Stock Index plunged 464.30 points, or 18.2%, closing at 2090.96. In contrast, the Dow Jones Industrial Average gained 80.35 points, or 2.14%, ending 1994 at 3834.44.

Why the disappointing performance by discount store stocks, and most of the retailing stocks for that matter? For one, disappointing same store sales as too many stores fought for shoppers' money. Higher interest rates also had an impact -- both financially and psychologically. The Fed raised interest rates on six occassions in '94 and the outlook for '95 shows more rate hikes on the horizon.

So are retail stocks undervalued as we enter the new year? A case can easily be made that they are. But with interest rates on the rise, and with stock's incredible aversion to higher rates, the macro environment does not look good for stocks in general in the first half of 1995, let alone discount store stocks. Once interest rates plateau, and should the economy continue to grow, retail stocks are likely to rally simply based on price, if not fundamentals.

Against that backdrop, let's take a look back at 1994's winners and sinners.

In 1994, Pamida ruled the roost. It led all stocks on a percentage-gained basis with a resounding 80% return to shareholders. Other positive developments at the Omaha, Neb.-based concern last year included: the company's third-quarter sales rose 10% to $178 million; same store sales for the quarter rose a respectable 3.3%; year-to-date sales rose 5.6% to $501 million; and same store sales year-to-date were up to a sturdy 4.5%.

Best Buy was the largest dollar gainer of the lot last year, as it ended up $8 per share at $31.25 after trading as high as $45.25 during 1994. The stock was one of the favorite mutual fund holdings last year until an article in The New York Times said Best Buy may have more than $100 million in consumer electronics inventory than the company anticipated. That prospect, coupled with lower-than-expected earnings recently combined to take the wind out of what was shaping up to be one of the best stock performers on Wall Street in 1994. Nevertheless, it stilled turned out to be a banner year for Best Buy shareholders.

As far as the sinners are concerned, no stock fell farther last year than Megafoods. Its transgression: The company filed for Chapter 11 bancruptcy code protection and was subsequently delisted from NASDAQ. The result: Megafoods' share price fell a mega distance, plunging 97.7% to 25 cents per share.

Dollar Time Group was a close second as it tried to displace Megafoods for largest percentage-lost dishonor. Instead, it fell 94.6% before coming to rest at 28 cents per share. In late November, the Hollywood-based company said its suspended cfo, Gary Kaminsky, was charged with money laundering and conspiracy.

F&M Distributors chose the path traveled by Megafoods and filed for Chapter 11 last year as well. Shareholders, not surprisingly, were not too pleased with the turn of events, and F&M's share price capsized a whopping 82.5% to $1.38 per share.

Other large casualties of 1994 (those stocks down more than 50% in value) included: All For A Dollar, 60.7%; Amber's Stores, 76.8%; Clothestime, 54.8%; Family BArgain, 66.7%; 50-Off Stores, 54.6%; Filene's Basement, 57.5%; Jamesway, 69.2%; L. Luria & Sons, 60.8%; Rag Shops, 59.5%; Roberds, 50.9%; S&K Famous Brands, 64.4%; Service Merchandise, 52.5%; Solo Serve, 75.8%; Sportsdown, 74.4%; Stuarts Dept. Stores, 72.2%; Tops Appliance City, 71.4%; and Venture Stores, down 50.3%.