Newsletter Watch: Shopping for value—retail favorites
While still three months away, this week unofficially marks the start of the holiday retail season. With estimates that the consumer represents two-thirds of economic spending, one should not be surprised to find economists and pundits focused intently on consumer spending over the coming quarter.
The bulls will point to the tremendous resilience of the American consumer, while the bears will question the negative impact of housing trouble and credit turmoil. In either event, several leading newsletter advisors are focused on individual retailing firms that they believe offer value to investors.
Richard Moroney "suits up" with JoS. A. Bank Clothiers, Inc. (Nasdaq: JOSB), a retailer of men's apparel. The editor of Upside Stocks notes that the company reported July-quarter profits per share of $0.44, up 16% and $0.02 above the consensus estimate. Earnings, he notes, benefited from higher interest income.
According to Moroney, "Overall revenue rose 13%, spurred by double-digit increases in all major categories, particularly suits." The advisor points out that same-store sales rose 2.5%, helped by increased transaction volumes.
The company, he says, opened six new stores during the quarter, ending July with 391 locations. And, Moroney adds, management plans to open 50 stores in fiscal 2008 ending in January and now targets a total store count of about 600, up from prior guidance of 500.
Moroney considers the stock—which has a market cap of $644 million—modestly valued at just 13 times trailing earnings. He rates the issue a buy.
Another small cap retail on the upside “buy” list is G-III Apparel Group, Ltd. (Nasdaq: GIII), which designs, manufactures and markets a broad range of outerwear, sportswear, and women's suits and dresses. The stock has a market cap of $341 million.
Moroney says that apparel is sold under licensed and proprietary brands, as well as private labels. Notable brand names include Calvin Klein, Kenneth Cole, Nine West, IZOD and Tommy Hilfiger.
Sales and earnings are highly seasonal, he says, with the company typically reporting losses in the April and July quarters. However, he adds, "Management seems to be doing a good job expanding the product and license pipeline, which should help smooth results."
For fiscal 2008 ending January, he says that consensus estimates project per-share profits will climb 10% to $1.03. For fiscal 2009, per-share profit estimates range from $1.24 to $1.44, with an average of $1.31.
"The stock trades at 19 times estimated year-ahead earnings per share of $1.08, a reasonable multiple considering its growth prospects. The advisor has initiated coverage of the stock with a buy rating,” Moroney says.
Nate Pile, editor of Nate's Notes, sees opportunity in the trendy designer, Perry Ellis International, Inc. (Nasdaq: PERY). The company, with a market cap of $416 million, is involved in the designing, marketing and licensing of apparel products. Fundamentally, Pile believes PERY is a "great company."
"The issue broke below the $29 level. But the good news is that the stock has thus far managed to find support right where it should have," said Pile, assessing the stock from a technical perspective. "The sell-off may actually be helping to set the stage for the next move up by shaking weak holders out of the stock."
He says that the stock is rated a “buy” at price under $32 and would be considered a "strong buy" on any dips below $27, but cautions that a decline below $25 would be considered a "rather bearish" signal.
Along with one's designer duds, Charles Mizrahi suggests adding accessories from Movado Group, Inc. (NYSE: MOV), a manufacturer and seller of fine watches and jewelry, with a market cap of $842 million.
In his Hidden Values Alert, he says, "The company is a leader in the design, development, marketing and distribution of watch brands." The company, says Mizrahi, is selective in its licensing strategy and chooses to enter long-term partnerships only with powerful brands that are leaders in their respective businesses.
Its portfolio, he notes, includes Movado, Ebel, Concord, ESQ, Coach watches, Hugo Boss watches, Juicy Couture watches, Tommy Hilfiger watches and Lacoste watches.
"Strategic acquisitions and their subsequent growth, along with license agreements, have played an important role in the expansion of the company's brand portfolio,” he says. "The long-term debt/equity is a manageable 16%. The current ratio of current assets to current liabilities is a strong 5.3. Free cash flow-to-sales ratio is at 10.4%. Net profit margin has increased over the last year from 5.6% to 9.4%.”
Mizrahi says that "if MOV can grow earnings at only 13% per annum (a margin of safety that is 23% lower than its past five-year EPS growth rate of 17% per annum) and maintain a P/E of 13, the stock will handsomely reward investors in the next five years."
