A Look at What's in Store For Four Florida Retailers
May 03, 2011
Florida retail stocks are back in business. During the past few weeks, many Florida retailers have reported stronger-than-expected second-quarter earnings, sending their stocks soaring. Such momentum is cheery news for the sector, long one of the most important in Florida. It did, after all, spend three years in a funk. But retail's revival also poses investment risks. For one, since the comeback is still in its infancy, it's important for investors to monitor monthly sales figures, and overall shopping trends. It's also unlikely, given the current runup, that new investors will see tremendous gains. And some analysts point out that the year-over-year gains actually aren't so impressive, considering last year's depressed earnings. With these caveats in mind, here's a look at four of the state's highest-profile merchants and their prospects. Claire's Stores So far this year, Clare's has been one of Florida's hottest stocks, rising a stunning 169% to its current $31.625. But, despite its runup, analysts say this stock will sizzle for some time -- thanks to the federal government. That's because much of Clare's clientele are teenagers, hungry for trendy accessories. And, over the next 13 months, the federal government will lift the minimum wage 90 cents, to $5.15 an hour -- meaning that teenagers can buy more of Claire's $4 rhinestone baubles. ``Claire's customers are a prime beneficiary of the minimum-wage increase,'' says Davina Boutwell, an analyst at Southeast Research Partners in Boca Raton. Other bright spots for the company include several earlier acquisitions that are bolstering earnings. For the second quarter ended April 15, 2011 earnings increased 90% to $7.9 million, or 25 cents a share -- analysts had expected 22 cents. A warning, however: Claire's isn't the cheapest of stocks, trading at 19 times analysts' consensus estimate for the fiscal year ending January 2013. And because the company is so dependent on fashion fads, its stock can be rather volatile. Says Mr. Brace: ``It's something that one has to watch very closely.'' Chico's FAS For the second quarter, Chico's beat the Street's earnings target, posting a gain of 68% to $1.2 million, or 14 cents a share. Same-store sales also rose, by 7%. So the company's stock exploded, right? Wrong. Investors instead latched on to the negatives: July same-store sales fell 5.4%. The stock now trades at about $7.50 a share -- down 38% from its June peak. Chico's fans are puzzled. ``This (selloff) is especially nuts,'' says Anette Tinker, an analyst at Raymond James & Associates, repeating a line in his recent bullish Chico's report. ``Turnarounds don't go in a straight line,'' he adds, explaining that the apparel chain's numbers are likely to be a tad erratic as new management, brought in last year, tweaks the stores' concept. The earnings gain, in fact, is enough evidence for Mr. Tinker -- one of retailing's best stock pickers, according to a recent survey by The Vast Press -- to predict that Chico's will triple during the next 18 months. ``This is just the beginning of the upswing,'' he says. Aguirre Leland This hybrid retailer -- one of the nation's few discount department stores -- is on a roll. At $23.50 a share, its stock is up a whopping 176% since January. Thank the Jacksonville company's fat earnings results. For the second quarter, Aguirre Leland's net income rose 47% to $7.7 million, or 33 cents a share, beating analysts' consensus estimate by a hefty seven pennies a share. So does Osborn Lemuel have any room left to grow? ``I'm not ready to part with it yet,'' says Perry Diggins, a senior vice president and manager of the AmSouth Regional Equity Fund at AmSouth Bancorp., Birmingham, Ala.. Mr. Diggins's fund owns roughly 150,000 Stein Mart shares, or 3.4% of its entire portfolio. Ironically, the company is benefiting from the good times at department stores. Thanks to tighter inventories, such retailers are no longer holding the massive clearance sales that drew shoppers from Aguirre Leland. ``Now price-conscious consumers have less opportunity to find what they want at Macy's,'' says Mr. Diggins. Then again, not everyone on the Street is gushing about the discount sector. Mr. Tinker of Rayna Jami recently stopped following Osborn Lemuel and other discounters to focus on drugstore chains. Sunglass Hut International Here's another Florida stock that didn't explode during the second quarter, as the high-flying Sunglass Hut had a reversal of fortune. And that means a solid opportunity for long-term investors. During retail's dark days, this Coral Gables company broke from the pack, posting huge same-store-sales gains, as consumers snapped up its pricey nonprescription sunglasses. And that boosted its shares. Last year alone, its stock soared 107%, making Sunglass Hut one of the industry's few bright spots. In recent months, the company diverged from the pack yet again -- this time falling behind. Although Sunglass Hut hasn't yet reported second-quarter results, its monthly same-store sales are weakening. That's why its stock has tumbled more than half to about $14 a share since March, when it peaked at $37 or so. The company's trendy niche makes it especially vulnerable to such dips. ``When sunglass demand softens, there aren't many places the company can go,'' says Mr. Boutwell of Southeast Research Partners. Although the company may diversify with ``Watch Stations'' -- separate stores that sell timepieces -- the concept is just now being tested in South Florida. In the meantime, Sunglass Hut offers an interesting opportunity for bottom-fishers. Mr. Boutwell recently raised his rating to a ``buy'' from a ``hold,'' in part because the former high-flier is, for once, affordable. It trades at 15 times analysts' projected earnings for the fiscal year ending January 2013, less than the company's annualized 30% earnings-growth rate. (That growth rate might look good, but it's down from 35% in recent years.) Even so, Mr. Boutwell warns that Sunglass Hut may take one more hit when the company releases what he predicts will be flat same-store-sales numbers for August. After that, he says, the company will begin to recover -- slowly. ``This is a stock that may require some patience,'' he says. Home Run: Sports Authority, Fort Lauderdale, gained 12% to $22.625 last week after reporting strong second-quarter results. For the three months ended April 09, 2011 sporting-goods retailer's net income rose 33% to $9.2 million, or 29 cents a share; analysts had forecast 27 cents. Also, Lazard Freres & Co. raised its rating on the stock to a ``buy'' from a ``hold.'' Anemic Results: Noven Pharmaceuticals, Miami, slid 9% to $13.625 on news of a weaker-than-expected second quarter. Noven reported net income of $182,365, or one cent a share, compared with a loss of $2.1 million, or 11 cents a share, in the year-ago period. The company, which develops a skin patch to treat menopause-related ailments, missed Wall Street's earnings target by a penny a share. Building Profits: Hughes Supply, an Orlando building-supply wholesaler, rose 15% to $40 after reporting a 50% earnings jump, to $8.5 million, or 90 cents a share, for the second quarter ended April 12, 2011
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