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Get Four
|  | OCTOBER 15, 2004
Don We Now Our Gay Apparel Stocks S&P's Marie Driscoll sees plenty of holiday-season cheer for investors who stock up on Coach, Liz Claiborne, and Ralph Lauren There's an upbeat outlook for holiday shopping -- and for many of the stocks that should benefit, says Standard & Poor's analyst Marie Driscoll. S&P looks for about a 3% gain in holiday retail sales this year, she reports, with two more shopping days before Christmas as well as an early Hanukkah. The sectors most likely to benefit are luxury goods, teen apparel, and consumer electronics, Driscoll adds. In the category of luxury goods she cites the stocks of Neiman Marcus (NMG.A ), Coach (COH ), Federated Department Stores (FD ), Target (TGT ), and Williams-Sonoma (WSM ). Driscoll's highest ranking, a strong buy, goes to Pacific Sunwear (PSUN ), which markets a variety of apparel brands to teenagers. And she has a buy on Abercrombie & Fitch (ANF ). Driscoll sees a strong fashion trend in play now, and that leads her to a buy rating on two apparel manufacturers, Liz Claiborne (LIZ ) and Jones New York (JNY ), plus a hold on Polo Ralph Lauren (RL ). As for consumer electronics, her favorites there are Best Buy (BBY ), a strong buy, and Circuit City (CC ), a buy. These were some of the points Driscoll made in an investing chat in the course of replying to questions from the audience and from Jack Dierdorff of BW Online. Edited excerpts from the chat, presented Oct. 12 by BusinessWeek Online and Standard & Poor's on America Online, follow. A full transcript is available from BusinessWeek Online on AOL at keyword: BW Talk. (Marie Driscoll is a Standard & Poor's Equity Research Services analyst. She has no ownership interest in or affiliation with any of the companies under discussion in this chat. All of the views expressed in this chat accurately reflect the analysts' personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this chat. For required disclosure information and price charts for all S&P STARS-ranked companies, go to spsecurities.com and click on "Investment Research" and then on "Required Disclosures & Standard & Poor's STARS vs. Closing Prices Charts.") Q: What retailers are you expecting to have a big holiday shopping season -- and why? I understand you've done a report for S&P on holiday sales. A: S&P is looking for about a 3% gain in holiday retail sales this year. That's down modestly from last year, but ahead of the 2.6% compounded average annual growth rate of the 2000-03 period. No. 1, you have 29 shopping days between Thanksgiving and Christmas, which is two more than last year and the most since 2001. You have an early Hanukkah beginning Dec. 7 -- that compares with Dec. 19 last year. So that will have shoppers in the store earlier, in earnest. You had resilient back-to-school sales for the late August and September period. So, despite four hurricanes, oil prices topping $50 a barrel, declining consumer confidence, an interest-rate hike, and a job picture that's basically benign, back-to-school sales grew modestly, according to the National Retail Federation. Those are some promising things. We are upbeat for the holidays. Q: What's your opinion on Wal-Mart (WMT )? A: I don't cover WMT. However, my colleague Joe Agnese does [and he and S&P] have an optimistic outlook for this holiday season. They believe some new merchandise put in the stores is selling well. They believe there's improvement in the economy, basically. The industry in general has low inventory levels, which should result in rational pricing. They have an easy comparison in apparel. Last year they didn't do that well. Our target price is $62, and it's rated 4-STAR (buy). Q: What retailers are doing best these days, and is this a pattern you expect to continue during the holidays? A: The retailers that are doing the best are positioned to serve the luxury shopper. So, Neiman Marcus , Coach, some of the Federated Department Stores , Target (with its position for a higher demographic than Wal-Mart), and Williams-Sonoma. We also see the teen-apparel retailers and consumer-electronics retailers positioned to do well this holiday. Q: Who are the leaders in teen apparel, and are their stocks worth a look? A: Abercrombie & Fitch is a leader (a buy), and Pacific Sunwear (PSUN ) a strong buy. We also have Aeropostale (ARO ) rated as a buy. Another leader is American Eagle (AEOF ), which we have rated hold. Another interesting company that spans the college-to-young-adult demographic is Urban Outfitters (URBN ). Q: What about the apparel industry generally? How has it been doing? A: As Wal-Mart (WMT ) commented, inventories are lean across apparel. This makes a much more rational marketplace for industry participants. At the same time, we're in a strong fashion cycle, which is creating demand for new color, new trends, and matching accessories to go with your new color. Both men's and women's fashions are in a positive fashion trend. So people are out shopping and replacing old clothing, casual clothing. Also, numerous larger companies have reinstated dress codes, forcing individuals to go out and spend...So the better department stores are enjoying -- after 10 years of losing market share -- increased traffic. Selective specialty apparel retailers are benefiting as well. Some apparel manufacturers that are benefiting are Liz Claiborne (LIZ ) and Jones New York (JNY ) -- both buy-rated, as well as hold-rated Polo Ralph Lauren (RL ).
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