Thursday, September 10, 2009

Some retailers, then versus now (JWN, AEO, GPS, KSS, PSUN)

AlphaNinja - The retail landscape looks a lot different than it did in the flush Fall 2007 period, so I thought I'd compare a few companies' prospects with what they looked like back then.

The market seems to be treating these stocks pretty fairly, in my opinion. After the explosive rally from the March lows, these stocks enjoy PE multiples above those two years ago - mostly due to dramatically lower earnings, but higher ratio's nonetheless.

The stocks are down 22%, while earnings are down 41%, using estimates of the October quarter 2009 versus actual October 2007 results, and excluding PacSun, which doesn't "do" earnings (just losses).

The average Price-to-Earnings ratio is now 28 versus 15 back then - that reasonable 15 number is probably why so many were caught surprised at the dramatic downside in these shares. Some might argue that the current PE's are too high, but these are "trough" or at least near-trough earnings, so some leeway is expected. Less volatile are revenue figures - the stocks now sport a Price-to-Sales average of .93, down big from the 2007 1.26 figure.

What to take away? Shares of the Gap, an AlphaNinja favorite, are up 17%, versus a 30% decline for the others, as new management has focused on profitable sales as opposed to LOTS of sales. The company's P/S ratio has gone from .95 to 1.54 as a less promotional approach has made each dollar of revenue more valuable. Others should take note...



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