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Optimism in the Retail Sector….?

August 25th, 2009 Comments off

            For so many months I essentially ignored what was happening with stock prices for the Retail sector since they were getting so badly crushed. All you had to do was look across the board and it was nothing but shades of red across the daily pricing action, 50-DMA, as well as the 200-DMA. To put it in perspective, there are 34 Retail stocks that I have in my listing that I peek in on and see what’s happening. However, the mood is definitely changing as many have seen some dramatic reversals from their 50-day and 200-day averages. In fact, it’s now the rare exception for one of these to be showing in the red on this number.

            Previously, there was not a single stock that was trading in excess of 1x Sales. There’s now seven stocks that are trading at a multiple > than 1x sales. I’m also starting to see valuations that are recognizing emerging performance while I see other retailers that are still being hit with low valuations because they have not seen a turnaround in their performance or still have yet to exhibit any consistency with previously stated strategies. Of those still being hit with valuation issues, Pacific Sunwear (PSUN) is currently trading at an 80% discount to sales. Charlotte Russe (CHIC) is trading at a 57% discount, and were it not for the recent buyout offer of $17.50/share, the effective discount on CHIC would be much higher. These are two retailers that can’t seem to stick with a strategy and have lost their way.

            There are still a number of other problem children out there in Retail and Apparel, but the strong players are capitalizing on the weakness. Even for our own small company, we have been buckled down and concentrating on what’s good for our brand, our customer, and not getting caught up with all the negativity. We’re being rewarded for that focus as we continue to see revenue growth as well as great financial results from the restructuring we have put in place over the last year. It’s senseless to get caught up in the sector speculation, negative press, and indecision paralysis waiting to see who moves first. Run your analysis, be familiar with your brand and customer, and capitalize on the opportunities that are sitting in front of you right now….

 

Thanks for reading . . . .

 

Jeffrey Ishmael