Latest sign that the apocalypse is upon us:
Controversial bleached-blonde rapper Eminem, currently starring in the hit movie “8 Mile,” is being counted on by Wall Street to boost clothing sales this holiday season.
A prime beneficiary is expected to be apparel chain Pacific Sunwear of California Inc. (PSUN), whose d.e.m.o. stores in malls cater to the casual urban and hip-hop style worn by America’s latest magazine cover boy.
Meanwhile, the chain’s other stores that bear its flagship Pacific Sunwear name are expected to benefit from increased sales of beach attire popularized by the young women surfers in the recent film “Blue Crush.”
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I mean, is this going to be a hip holiday, or what? And some of you mistakenly thought the recent rate cut by that fuddy-duddy Alan Greenspan of the Federal Reserve would make the difference this year.
“The slowing of big-ticket items such as cars and appliances sales is freeing up dollars for smaller ticket purchases such as apparel,” said Richard Jaffe, retail analyst for UBS Warburg in New York who is recommending the stock of not only Pacific Sunwear but also the trendy Urban Outfitters Inc. (URBN) stores as well. “The retailers with something unique, different or special this holiday are the most appealing.”
Stocks of retailing companies rallied last spring, sold off dramatically in early fall and have since rallied again. Jaffe is confident of their upside potential, though analyst opinions are a mixed bag this year and some are more cautious.
“Consumer confidence isn’t as strong as you’d like and the employment outlook isn’t as great as you’d like, but people still have the same people they want to buy gifts for,” acknowledged Marie Driscoll, retail analyst with Argus Research in New York. Yet Driscoll frets about a lack of “must-have” items this year, other than some new electronics merchandise. She expects that many Christmas packages will be filled with lots of accessories. As a result, Abercrombie & Fitch Co. (ANF), a chain that offers casual apparel and accessories for men, women and children, is a stock that’s priced right for buying now, she believes.
No. 1 retailer Wal-Mart Stores Inc. (WMT), which boosted results of the entire industry last holiday season, will be hard-pressed to equal that record. Nonetheless, it’s a quality stock worth buying, Driscoll added. She recommends stock of moderately priced apparel chain Kohl’s Corp. (KSS) because 45 percent of its stores were opened in just the last three years. Bed Bath & Beyond Inc. (BBBY) in domestic merchandise and Williams-Sonoma Inc. (WSM) in products for the home are other solid choices, she said.
“We think that the companies in the business of low prices will do well this holiday season,” said Roz Bryant, retail analyst for Morningstar Inc. in Chicago, who considers off-price retailers TJX Companies Cos. (TJX) and Ross Stores Inc. (ROST) to be the pick of that litter. Stock prospects of Kohl’s are superior to those of the struggling retailing giants Sears, Roebuck & Co. (S) and J.C. Penney Co. (JCP), both of which are in turnaround mode, she said.
“Customers can expect to see a fair amount of discounting, though companies such as Abercrombie & Fitch entering the season with strength can maintain their pricing power because of strong brands and popularity,” Bryant added. “Retailers have all maintained pretty conservative inventory positions throughout the year because they were burned to varying degrees with so much inventory last year.”
According to the Boston-based First Call research firm, shares of other big retailers Target Corp. (TGT), Federated Department Stores (FD), The Gap Inc. (GPS) and Nordstrom Inc. (JWN) currently receive consensus “buy” recommendations from Wall Street analysts.
Additional Jaffe picks are the apparel retailer Limited Too Inc. (TOO) for girls ages eight to 14 who “have become more fashion conscious” and Limited Brands Inc. (LTD), which derives 40 percent of its earnings from Bath and Body Works, 40 percent from Victoria’s Secret intimate apparel and the remainder from men and women’s clothing.
Finally, The Men’s Wearhouse Inc. (MW), which has captured market share over the past 10 years to become the dominant men’s apparel retailer, is another Jaffe favorite. “Very quietly, men are coming back into the apparel market,” he concluded. “Their spending declined over the last two years, and we think there’s now pent-up demand and enough new products to spur interest.”
I guess not even Eminem can carry the entire holly, jolly season all by himself.