DSN stock index flat; uncertainty prevails - Discount Store News Index

Discount Store News, April 23, 1990 by Neil Nordby

DSN Stock Index Flat; Uncertainty Prevails

Investors, frozen with uncertainty from the trials and tribulations of once-high-flying Federated, Allied and Macy's, kept to the sidelines during the first quarter of 1990.

And nowhere is this uncertainty more evident than in the Discount Store News Stock Index, as our indicator of the 55 stocks listed tread water over the last three months.

Here's how the industry looked after the rain had cleared: the average discount store stock surrendered a scant 0.16 percent in stock price, as the DSN Stock Index slipped to 1600.06 at quarter's end from 1602.64 at year-end. In comparison, the decline in the widely-monitored Standard & Poor's 500 Index was considerably more dramatic, tumbling 3.81 percent due to a cold start to the new year and the dramatic collapse in the Tokyo stock market.

Retailers Post Mixed Marks

First-quarter report cards were mixed for the nation's discount store retailers. For example, while the likes of Best Buy rose a stout 73 percent per share to $10.38, there were others like Ames (down 59 percent) that unsuccessfully eluded a deluge of sell orders. The bottom line: those firms with strong bottom lines fared quite well. Those that didn't...

Here, then, are some of the victors and vanquished in the discount store sector over the last three months.

The Victors

As aforementioned, Best Buy stormed ahead 73 percent in active trading last quarter. The reason: record fiscal third-quarter net income of $6.3 million and expectations of similar strong results during the fourth quarter just ended last week.

CUC International chimed in with a strong 18 percent advance to $17.13. Expectations of strong fiscal fourth-quarter earnings, a 2 million common share repurchase program and strong cash flow which enabled the company to repay $20 million of a $100 million recapitalization loan, prompted investors to buy the stock last quarter.

Consumer electronics retailer Circuit City Stores continued to chalk up impressive numbers as February sales rose 25 percent from a year earlier. What's more, the company said sales at stores open at least one year were up 5 percent, exceeding its expectations. Wall Street certainly took notice as Circuit City gained $2.50 a share, or 11.5 percent, to $24.25.

Child World gained just over 9 percent a share to $13.50. CNC Holding, the 82 percent-owner of Child World's stock, and Child World are considering the disposition of all or part of CNC's interest in Child World, a merger, or other financial transactions. CNC has recently held discussions with potential acquisitors of Child World.

Toys "R" Us also turned in a stellar performance last quarter, as it added 12 percent to $40.13. The Japanese government last month took the first steps toward allowing the toy distributor to open its first store in Japan.

And then there was ever-stellar Wal-Mart, which tacked on another $2.38 a share to $47.25. The reason: the stock hit the mother lode, posting a 33 percent rise in annual sales thanks to a 17 percent gain in same-store sales.

On the sell side of the ledger, Ames spiraled 59 percent lower to a 12-month low of $4.25. The troubled retailer said it will stop paying its quarterly dividend in a cost-cutting measure that highlights the chain's difficulties in turning around its recently purchased Zayre unit.

Lionel Corp., rolled 12.5 percent lower to $4.38. Robert Toussie L.P. ended its $8-a-share tender offer for Lionel and sold a 4.9 percent stake to Otis Group for $7 each--a 100 percent premium over Lionel's closing price at the time.

Waban contracted an even 25 percent to $9 following predictions it will post significantly lower fiscal 1991 earnings. The reason: expenses related to long-term investments in its BJ's Wholesale Club and HomeClub divisions, including additional store openings and upgrading customer support.

Service Merchandise traveled a southerly course, shedding nearly 23 percent to $7.25. Shareholders became ex-shareholders after learning that a federal grand jury was conducting an investigation of the company, arising out of a tax fraud case against two execs.

Pic `n' Save also encountered a rough and tumble quarter, as it closed the period 19 percent lower than when it began. Fourth-quarter net income fell 39 percent to $14.5 million, largely due to disappointing sales.

QVC Network completed its consolidation of CVN last week. The firm, which now claims it's the largest home shopping network, began sending the QVC signal to viewers nationwide, and is now seen in over 33 million homes. As a result of the marriage, QVC said it will suspend its quarterly dividend of 10 cents to allow more flexibility in paying its $377 million in debt incurred in its purchase of CVN. QVC closed the quarter at $14.75, down 10.6 percent.

Will the weakening national economy, together with the financial troubles of one-time bellwethers Allied, Federated and Macy's, convince investors to avoid discount store stocks in the second quarter? Stay tuned for next quarter's report card to see.