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A WHOLESOME HALF.

NEW YORK-It was a tough first half on Wall Street, but home goods stocks fared well.

As investors grew wary of shady corporate accounting (Enron and WorldCom) as well as hints of insider trading (ImClone), the major indexes stumbled and recovered and stumbled again throughout the half. As a result, many companies marked new 52-week lows.

However, home goods retailers and manufacturers maintained their gains, and ended the first half on a positive note. But that note turned sour two weeks ago at the beginning of the second half when nearly all of the home goods retailers and manufacturers watched their stocks plummet.

Noteworthy were the percentage changes for the gains and declines. The top gainers showed exuberant gains while the declining percentages, except for one stock, Kmart, were mostly modest. On the manufacturing side, for example, Dan River and Culp watched the value of their shares soar more than 709 percent and 253 percent, respectively, by the end of the half while most of the decliners were between 2 percent and 6 percent. Salton posted the steepest decline with 35 percent.

On the retail side, Kmart dipped the most with an 82 percent decline as the impact of its Chapter 11 filing in January chased many investors away. Other decliners include Home Depot, 25 percent, and Best Buy, 19 percent. Leading gainers on the retail side include ShopKo with 117 percent as well as Big Lots and Dillard's with 77 percent gains each.

It was a promising first half, one that showed how intrigued investors were with the home goods segment and its resiliency in hard times. Buoyed by a strong housing market and a continuing trend of consumers diverting spending from travel to home-related goods and activities, the home furnishings industry was a good bet for Wall Street.

Twenty-four of the 29 manufacturing stocks tracked by HFN clocked gains for the first half while five showed declines. On the retail side, 21 stocks posted gains from the first day of trading in January to June 19, when this report was compiled. One stock on the retail side, home improvement retailer Lowe's, remained unchanged, and 13 stocks declined.

The HFN Stock Index, which is composed of retailers and manufacturers tracked by HFN, closed the first half with a 4.5 percent decline while the Dow Jones Industrial Average fell 8 percent.

Analysts said the current climate is good for the home goods sector and especially for better performing retailers and manufacturers. They said in a post-Enron environment, investors are attracted to more "transparent" types of companies. Most retailers are transparent to investors because their businesses are easy to explain and their quarterly results easier to quantify (in terms of sales per square foot, for example). So it's no surprise that analysts have been slightly optimistic and a little bullish on the sector.

The analyst team at BB&T Capital Markets said in its most recent valuations update that while the economic recovery "has not necessarily been felt with equal strength throughout the consumer durables industry, it is apparent that consumer confidence is on the rise, which will drive spending in the long run."

The analysts also said their recent visit to the High Point, N.C., market revealed optimism from retailers and manufacturers. Indeed, in the most recent HFNdex report, which measured retail executives' perceptions of the economy, expectations remained high despite a slight slip. The index came in at 69.7 for the second quarter, which was a decrease of 2.2 percent over the first quarter, but above the 55.8 figure in the same period last year. Readings above 50 reflect a more optimistic outlook.

And that bodes well for the home goods industry as well as for Wall Street. As accounting scandals roil the market, investors are eager for good investment news. Diane Kutyla, an economist with Deloitte & Touche, said in her most recent monthly retail briefing that although the economy hit a speed bump in May, "signs of the recovery continued to mount."

Kutyla noted that housing starts ticked up in May, and there seem to be signs of continued growth. "Good news on housing will likely continue for the next several months," she said. "Housing starts in May rose 11.6 percent, the best increase in almost seven years."

And that's great news for anyone making or selling products for the home, which helps explain why analysts continue to peg home-related retailers and manufacturers with "buy" ratings.

Robust same-store sales also help. Retailers such as Pier 1 Imports and Havertys have posted strong comps, especially in the second quarter. The reward has been that stock prices have soared. Pier 1's gain by the end of the first half came in at 33 percent while Havertys' climbed 17 percent.

In other areas of the specialty home goods segment, perennial favorites with investors include Bed Bath & Beyond, Linens 'n Things, Williams-Sonoma and Cost Plus.

Alan Rifkin, an analyst with Lehman Bros., has Bed Bath & Beyond pegged with a "2 Buy" rating. He said the retailer was one of his top picks, adding that it consistently posts "industry-leading sales and earnings per share irrespective of the macro environment." Other analysts said the same of several retailers outside the specialty home channel, such as Wal-Mart, Target and Kohl's, as well as value retailers.

Deutsche Banc Alex. Brown analyst Michael Baker said he is "bullish on the value retailers due to a compelling mix of defensive and growth characteristics."

"This includes strong comps despite the uncertain economy as merchandise mixes shift increasingly toward basic, core items," he added.

Baker has a "buy" rating on Dollar Tree and Family Dollar. "We believe that the value retailers can provide a safe haven for investors as the economic recovery struggles."

On the supply side, strong quarterly sales, along with improved operating efficiencies, have won the hearts of investors. And this has been tricky as retailers continued to maintain lean inventories throughout the first half.
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Title Annotation:home furnishings retailers' stock prices
Comment:A WHOLESOME HALF.(home furnishings retailers' stock prices)
Author:Zaczkiewicz, Arthur
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Article Type:Brief Article
Geographic Code:1USA
Date:Jul 15, 2002
Words:993
Previous Article:HAMPTONS COME ALIVE.
Next Article:HERE COMES THE SUN.
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