Don't expect a large turnaround in discount retailing in '95 - Editorial

Discount Store News, Jan 16, 1995 by Tony Lisanti

If the performance of the retail stocks in 1994 is any indication of what 1995 will bring, then it will likely be another mediocre year for discount retailing. Furthermore, if it's any indication of the performance of the top chains, then it could also be a tough year for many retailers that are already struggling.

Fourteen of the top 20 discount retail stocks posted declines in 1994 over 1993. In other words, only six stocks topped their performance of the previous year.

Here's rundown of the top retailers' stock performance based on the annual percent change (1994 over '93):

* Wal-Mart--High: 34; Low: 21; - 15%.

* Kmart--High: 22; Low: 12 1/2; - 39.5%.

* Sears--High: 55 1/8; Low: 12 1/2; - 33.1%.

* PriceCostco--High: 21 5/8; Low: 12 1/2; - 33.1%.

* Target--(Dayton-Hudson): High: 88 7/8; Low: 64 7/8; 6.2%.

* Toys "R" Us--High: 40 7/8; Low: 29 5/8; - 25.1%.

* Circuit City--High: 27 1/2; Low: 16 1/2; 2.3%.

* Service Merchandise--High: 10; Low: 16 1/2; 2.3%.

* Best Buy--High: 45 1/4; Low: 19; 34.4%.

* Fred Meyer--High: 42 1/2; Low: 29 1/4; - 14.6%.

* TJX--High: 29 3/8; Low: 14 1/4; - 46.4%.

* Office Depot--High: 27; Low: 18 7/8; 5.2%.

* Caldor--High: 32 1/2; Low: 21 3/8; - 12.7%.

* Bradlees--High: 17 1/4; Low: 10 7/8; - 13.1%.

* Venture--High: 24 3/4; Low: 10 3/4; - 50.3%.

* Woolworth--High: 26 1/4; Low: 12 7/3; - 40.9%.

* Hills--High: 23; Low: 18; 1.8%.

* ShopKo--High: 12 1/8; Low: 8 3/4; -16.5%.

* Comp USA--High: 22 1/4; Low: 6 3/4; -24.5%.

* Staples--High: 24 3/4; Low: 14 5/8; 45.6%.

So the question, as always, is what does this all mean?

Well, for many chains it was obviously not a good year, particularly when you factor in the lackluster holiday sales reported by most chains. And, it was not a good year for millions of stockholders who watched the value of their portfolios drop significantly.

Yet, on the other hand, many analysts believe this is a perfect time to buy many undervalued retail stocks. And many prognosticators already believe that 1995 will be a much better year.

Perhaps a recent "heard it on the street" type story--some conventional wisdom from a small business owner--best describes the mood of American consumers.

A few weeks ago, the owner/operator of a Texaco service station groused to me about business. "The news keeps reporting that it's going to be a great Christmas. I just don't see it," he told me. "My regular customers who normally come in and fill up their tanks for $20 to $25 are now asking me for $3 or $5 worth of gas. There's just no money out there. I don't care what the papers say."

He also told me that people don't wait until Christmas to buy things like they used to. He said, "People buy things all year when they need to."

My reply was "How would you like a job as a retail analyst?" And then I asked him what stocks he recommends in 1995.

Unfortunately, there are few indicators or reasons--political, economical or personal--that I have come across that indicate a dramatic improvement over 1994. The best possible news might just be that it won't get any worse.