In my recent column recapping the 2006 holiday shopping season, I pointed out that good -- but not great -- holiday performance for retailers would likely translate into mixed -- but not terrible -- results for December retail sales.
So even I was surprised by the better-than-expected, downright bullish retail report released by the Commerce Department on Friday. In particular, I liked the results from a retail group I've had my eye on for some time: electronics retailers.
Holiday Brings Cheer
On a year-over-year basis, total retail sales jumped a seasonally adjusted 5.4% in December. However, electronics and appliance stores booked a staggering 15% increase -- the biggest year-over-year increase since the early '90s. That's very bullish news.
Along with electronics stores, sales in several other discretionary retail groups showed solid year-over-year improvement for the month. These included general-merchandise retailers, up 5.4%; furniture and home-furnishings stores, up 7.6%; and restaurants, up 9.3%. When discretionary retail spending pops like that, it clearly signals that consumers' income is robust and flowing nicely. That, in turn, means more cash for MP3 players, home-theater systems and digital cameras, and that's undoubtedly bullish for electronics retailers.
In fact, I wasn't surprised that retail sales at electronics stores led the way in December. The group's major discounting fueled a stellar Black Friday shopping weekend, getting the 2006 holiday shopping season off to a vigorous start. My own trips to the mall confirmed that a flood of Nintendo video-game consoles, digital music players and flat-panel, high-definition TVs was pouring out retailers' doors. However, I don't believe anyone expected the group's sales to improve at a mind-boggling 15% clip.
From a bird's-eye view, the electronics retail group also boasts many outstanding fundamentals, including a $36 billion market cap, a price-to-earnings ratio of 25.1, and a return on equity of 15%. Those numbers are attractive, but here's the best part: The group carries a long-term debt-to-equity ratio of just 0.26. Translation: For every dollar in owners' equity, electronics stores have just 26 cents in debt. That's less than a fifth of the services industry's long-term debt-to-equity ratio of 1.48, and it shows me that the group maintains solid balance sheets, an important factor for any retailer.
Wayne Burritt
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