WALL ST. ON QUARTER: STORES WILL OVERCOME THE MISERY OF MARCH

NEW YORK — March may have been a bomb and Easter a non-event, but Wall Street analysts are still optimistic about first-quarter results for a number of key retailers.
It’s true that some prominent names — such as The Limited’s Express and Gap stores — are dragging, but analysts contend that continued strength in branded and designer women’s apparel and lean inventories bode well for the quarter’s final numbers.
And again proving how subjective fashion can be, some analysts feel the clothes currently hanging in the stores aren’t much help when it comes to boosting figures, but at least as many others give current trends a definite thumbs up as far as salability.
In particular, they say, growth in designer apparel and accessories should further benefit upscale department store chains and specialty shops, including Neiman Marcus Group Inc., Saks Fifth Avenue, Federated Department Stores and May Department Stores Co. throughout the first half.
In the moderate-priced department store sector, Sears, Roebuck is still favored over its main rival, J.C. Penney Stores Co.
Calif.-based Ross Stores Inc., an off-pricer that continues to surprise analysts on the upside, is expected to remain in front in the first quarter.
All this is happening in the wake of a strong fourth quarter. According to WWD’s survey of 63 retailers, fourth-quarter profits grew 44 percent on a 9 percent rise in sales, compared to a dismal period in 1995. (See accompanying chart.)
Along with upscale department store chains and specialty shops, off-pricers were helped by heavy demand for brands in the fourth quarter. TJX Cos., Loehmann’s Inc., and Burlington Coat Factory posted solid gains.
TJX, with its Marshalls chain, is expected to move swiftly forward in the first quarter, while higher store opening costs are expected to weigh down Loehmann’s figures.
On Thursday Loehmann’s reported that first-quarter earnings would be lower than expected.
Another area of strength is juniors and young men’s, with several chains posting impressive fourth-quarter figures. Earnings at Abercrombie & Fitch were up 75 percent; Wet Seal, 30 percent; Pacific Sunwear of California, 97 percent; Gadzooks, 66 percent, and The Buckle, 25 percent.
In the first quarter, some of the biggest gains among the specialty stores are expected from Ann Taylor Stores Corp., rebounding from a poor year-ago quarter, and Intimate Brands Inc. Strong results are also predicted for Gap’s Old Navy division.
However, Nordstrom Inc., The Talbots Inc., The Limited Inc., particularly Express, and the core Gap division are cited by analysts as near-term weak spots.
“Everyone is concerned with first-quarter comparisons because of a strong spring selling season last year, but so far the numbers look pretty solid,” said Kimberly K. Walin, analyst at Furman Selz. Walin, who follows mostly upscale specialty chains and department stores, said she continues to see strong performances at high-end retailers. “We are seeing better-than-expected sales at Neiman Marcus” in addition to strong numbers from Saks, Gucci and Tiffany.
Driven by NM Direct and its core Neiman stores, NMG benefited from an early Easter and beat expectations with an 8.7 percent same-store sales gain in March.
Among the analysts giving a good review to the season’s looks, Walin said, “Apparel is continuing to sell well with a pretty good reception to spring goods. I expect gross margins will hold up.” She estimates Saks Holdings will earn 34 cents a share in the first quarter against 8 cents, and Neiman Marcus, 42 cents a share in its third quarter against 30 cents. Neiman Marcus’s fiscal year ends in July.
Walin estimates May Co. will earn 40 cents a share in the first quarter against 36 cents a year ago.
“Customers are very willing to shop for apparel,” said Thomas A. Filandro, analyst at Gerard Klauer Mattison & Co. Inc. “The fashion differential is very clear in the marketplace…there is more better fashion out there than we have seen in a long time.
“Inventories are very lean as the carryover from holiday had been cleared very well,” Filandro added.
According to Michael Exstein, analyst at C.S. First Boston, business has been somewhat disappointing for the large mall-based anchor stores, calling the business “very moderate.”
Among his list of winners, Exstein said, “Federated and Sears seem to have pretty tight control over their businesses.” Analysts estimate Federated will earn between 8 and 11 cents a share against 4 cents a year ago, and Sears, 42 cents against 36 cents.
On the other hand, analysts look for J.C. Penney to earn about 57 cents a share for the first quarter, flat with the year-ago period. Dillard’s should earn about 50 to 52 cents a share in the quarter against 50 cents. For Mercantile, analysts estimate 60 cents compared to 56 cents before an accounting charge a year ago.
However, Exstein noted that the big discounters have been benefiting from better seasonal sales of nonapparel goods.
Wal-Mart has been offering better quality higher margin goods that should aid profits going forward, he said. Wal-Mart is expected to earn between 27 to 31 cents a share against 25 cents.
“Kmart and Wal-Mart’s efforts to improve inventories through heavy markdowns seem to have improved sales,” Exstein said. He noted that improvement went across the several product categories, including apparel. Overall, Exstein said that the Easter holiday, like the back-to-school season, was largely a “non-event.”
Kmart, which reported a 13 percent climb in March domestic general merchandise same-store sales, is expected to post a loss of 1 cent in the first quarter against an 8 cent loss from continuing operations a year ago.
Citing super sales at Target stores, Dayton Hudson said it expects first-quarter results to be ahead of analysts’ estimates of 33 cents a share. Last month, Target same-store sales advanced 12.1 percent. In the year-ago quarter, DH earned 17 cents adjusted for a 3-for-1 stock split last July.
For the specialty chains, Gerard Klauer’s Filandro expects future success stories from Intimate Brands, Abercrombie & Fitch and Gymboree Inc.
Over the longer term, Filandro looks for American Eagle Outfitters Inc. to show significant profit improvement. In March, American Eagle same-store sales grew 18.8 percent. Filandro noted that the company is doing “a great job on the women’s side of the business,” particularly in dresses.
But the picture is not all rosy. Filandro looks for weakness at the core Gap division as well as Talbots, which has been held back by a lack of store traffic.
Gap, he noted is up against difficult comparisons last year in addition to sales softness and hefty markdowns in its men’s wear, but the strength at Old Navy will still put Gap ahead for the quarter. “They had a difficult time in the month of March, which may bring down same-store sales for the quarter.” Gap same-store sales fell 3 percent in March.
But for the thriving Old Navy business, Filandro said that is has developed very quickly as a brand and has “true staying power.”
Gap is expected to earn about 33 cents in the first quarter against 28 cents.
In a recent research report, Maura Hunter Byrne, analyst at J.P. Morgan Securities Inc., said that among the companies she follows closely, she thinks that “Ann Taylor, a turnaround story, and Ross Stores, a momentum play, will record the sharpest increases” in the first quarter.
Byrne said in a telephone interview that Ann Taylor entered the first quarter with in-store inventory down about 19 percent. She added that the retailer’s 7.4 same-store sales gain in March came “with a heavy level of full-priced selling.” Byrne looks for Ann Taylor’s earnings per share to jump to 23 cents in the first quarter against 8 cents a year ago. Before the March sales figures came out, she was estimating earnings of 19 cents for the quarter.
Ross Stores is expected to log earnings of 44 cents a share in the first quarter against 27 cents. Byrne said that Ross is doing just about “everything” right. She noted that 45 percent of its stores are in California, a market in the midst of a strong revival, and that new stores in Hawaii have also been doing well.
Filandro noted that The Limited’s Express division remains bogged down with heavy inventories. In March Express same-store sales dropped a whopping 31 percent, and Filandro expects double-digit negative comps for the entire quarter. Yet, he added that in late April, there may be a “more coordinated effort” in the merchandise mix, which should bring about positive sales trends.
As for the Limited stores, Filandro said, “They have the right merchandise in the stores, great quality and good spring appeal, but they may be targeting too young a customer.”
Intimate Brands, however, “continues to knock the cover off the ball,” according to Filandro, who points to the successful introduction of Angels sheer bras and panties at Victoria’s Secret stores and in the catalog.
Intimate Brands should earn 12 cents a share in the quarter against 10 cents.
In her report, J.P. Morgan’s Byrne noted that despite tough comparisons from the first quarter of 1996, she expects all of the companies she follows, excluding Abercrombie & Fitch, Limited and Talbots, to post earnings improvements. She expects Limited to earn 7 cents a share against 9 cents a year ago.
The other firms Byrne follows are Gap, Gymboree, Intimate Brands and Charming Shoppes.
Although analysts estimate Abercrombie & Fitch will lose 2 cents in the first quarter, flat with the year-ago period, they noted that spring merchandise sold well.
Analysts look for Talbots to earn 54 cents, down from 62 cents a year ago.
In the off-price sector, TJX Cos. is expected to earn about 43 cents a share in the quarter against 33 cents.
Loehmann’s is struggling with sluggish sales in new and existing stores and higher costs. The firm expects its first-quarter earnings to be in the range of 14 to 20 cents a share — dependent upon April sales — and below analysts estimates of 32 to 34 cents. In the year-ago quarter Loehmann’s earned 27 cents a share.

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