RETAIL OUTLOOK FOR THE SECOND HALF: GENERALLY DISMAL
Byline: Thomas J. Ryan
NEW YORK--With apparel spending on the decline and August sales a near disaster, the outlook for retailing in the second half has turned gloomy. Wall Street is projecting only modest gains in profits--or declines--for most retailers for 1995, and without a significant sales pickup heading into the fourth quarter, estimates will be further reduced. "The fact that we're not getting real plus business on fall goods is showing me we just don't have a hungry consumer," said Peter Schaeffer, at Dillon Read & Co. "I don't think there's any great fashion direction or anybody doing anything to excite the consumer to go out and buy." Terrence J. McEvoy, at Janney Montgomery Scott, said apparel sales are "awful, and I don't see any reason for it to change a whole lot. There's no exciting fashion out there to drag anybody into the store." Barry Bryant, at Ladenburg, Thalmann & Co., also said that August's dismal figures have made him "fairly gloomy" about the second half. "The numbers in August were a little bit too bad to be dismissed purely on the basis of the weather," Bryant said. However, he said he is looking at the first two weeks of September for signs of a bounce-back that could save the back-to-school season, noting that strength in the economy and in consumer confidence hold promise for a "good, but not great" second half. While generally pessimistic about the near future, analysts are still looking for the second half to improve on the first half, when profits for a group of 43 retailers slumped 24.8 percent while their sales rose 10.7 percent. In the second quarter, profits for the group slumped 24.2 percent, while sales gained 10.8 percent. Apparel sales should improve in the fall with normal weather patterns, particularly considering last fall's unusually warm weather. A cold spell early in the season could ignite apparel retail gains. Some stores are seeing a pickup this month. "September is turning around for us," said Michael Gould, chairman and chief executive officer of Bloomingdale's. Gould and other retailers acknowledged back-to-school selling has been terrible, but sometimes the season comes in two waves--just before school starts and about a week later, when students get a look at what other students are wearing and then head to the stores. Asked why August was weak, Gould said retailers were up against tough comparisons from a year ago and there were no cloudy weekends to get people off the beaches and into the stores, and he added that ready-to-wear actually started getting soft at the end of July. In addition, analysts say, the apparel price deflation that has been squeezing margins should ease in the second half. However, margins will be under pressure due to mounting competition. Besides anemic apparel sales, retailers' bottom lines are getting crushed by industry problems such as overstoring and aging baby boomers who spend less on apparel. In this sluggish climate, analysts generally expect larger retailers to show better earnings, with cost savings through consolidations reflected on the bottom line. Certain niche retailers that benefit from having less competition could also do better. Many specialty stores are expected to show profit declines this year. Ann Taylor Stores Corp.'s earnings should tumble to a range of 36 to 60 cents a share, down from $1.40 last year. Charming Shoppes Inc. is expected to show near break-even results versus a profit of 42 cents. The Gap Inc.'s earnings are expected to fall to a range of $2.00 to $2.10 from $2.20, with weakness at the core Gap stores and GapKids not made up by strength at Banana Republic. Nordstrom Inc.'s earnings should slip to between $2.30 and $2.40 from $2.47 a year earlier. Spiegel Inc., which owns Eddie Bauer, is expected to net 20 cents against a depressed 23 cents, and Lands' End Inc., $1.00 against a below-par $1.09 a share in 1994. The Talbots Inc., which has cultivated a loyal customer with its classic merchandising focus, is expected to net about $1.86 this year against $1.56. Other winning niche players are Gymboree Corp., the children's wear chain, with estimates at $1.20 against 88 cents a share; Baby Superstores Inc., 72 cents versus 44 cents, and Sports Authority, $1.05 against 81 cents. The Limited Inc. should earn about $1.33 to $1.40, up from 1.25. Analysts are banking on a strong earnings turnaround in the fourth quarter to make up for declines in the nine months. Woolworth Inc., which is restructuring, should earn about 78 cents against a severely depressed 49 cents a year earlier. Department stores are generally expected to outperform other retail formats, but most are projected to show only meager profit gains on low-single to mid-single-digit sales gains. Among the upper-end department store chains, May Department Stores Co. is expected to net $3.20 a share this year, up from $2.94, and Dillard Department Stores Inc., $2.40 against $2.23. Federated Department Stores Inc.'s earnings are expected to fall to $1.63 a share this year from $2.08, but the drop is primarily tied to the December 1994 acquisition of R.H. Macy & Co. and the planned acquisition of Broadway Stores. Analysts see Federated's earnings bouncing back next year to around $2.10. Among chains catering to the middle market consumer, strong performances are expected from Sears Merchandise Group, $2.45 to $2.55 a share this year against $2.13, and Kohl's Corp., $2.25 against $1.87. J.C. Penney's earnings are expected to slip to $3.90 to $4.00 from $4.05 due to improvements at Sears and more upscale department stores. Other winners include Proffitt's Inc., with estimates pegged at $1.95 versus $1.46, and Younkers, $1.73 against $1.47. Mercantile Stores Corp. should make $2.95 against $2.92, Carson Pirie Scott & Co. should be flat at $2.00, and Bon-Ton Stores Corp.'s profits should sink to 90 cents a share from $1.24. National discounters should have decent profit growth this year, while most regional discounters, as well as off-price chains, are facing profit shortfalls, analysts noted. Wal-Mart Stores Inc. and Dayton Hudson's Target division continue to pace discounters. Wal-Mart's earnings should rise to $1.37 this year from $1.17, with Sam's Warehouse Club finally turning the corner and the core discount chain getting a boost from the introduction of the Kathy Lee Collection. While Target continues to show good earnings gains, Dayton Hudson's overall earnings should fall to a range of $5.00 to $5.35 from $5.52 because of continued weakness at Mervyn's. Kmart Corp., which is going through a massive restructuring, should net between 52 and 65 cents versus a depressed 55 cents Regional discounters should be under extreme pressure. One casualty was Bradlees Inc., which filed for Chapter 11 in late June. Profit declines forecast this year include Caldor Corp., $2.10 versus $2.65; Venture Stores Inc., 30 cents against $1.53, and Family Dollar Stores, $1.02 in its August 1995 year versus $1.10. TJX Cos. Inc.'s earnings--excluding a provision for the sale of the money-losing Hit or Miss unit--are expected to range from 95 cents to $1.02 this year, slightly down from $1.03 in 1994. Melville Corp.'s earnings are expected to fall to $2.60 from $2.75, reflecting weakness at its Marshalls off-price chain. Other declining earnings in the off-price sector include Burlington Coat Factory Warehouse Corp., 51 cents in its June 1995 year from $1.12; Value City Department Stores Inc., 63 cents in its July 1995 year versus $1.21, and One Price Clothing Stores, 23 cents against 42 cents. Filene's Basement Corp is expected to squeeze out 21 cents a share this year against a depressed 5 cents. Moving against the trend, Dress Barn Inc. is expected to earn 82 cents in its July year versus 73 cents, Stein Mart Inc., 86 cents versus 78 cents, and Ross Stores Inc., $1.29 against $1.24.
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