positive outlook for a second-half recovery from broadline retailer
may bode well for the economy, but not so much for the rest of the retail sector. Wal-Mart said earlier today in an earnings announcement that it expects to return to double-digit growth in the second half of 2001.
While the upbeat forecast could push Wal-Mart and other broadline retailers higher, analyst Bill Dreher of
doesn't think that the entire sector will continue to see the upward stock movement that it has in that past six weeks. The all-encompassing
Dow Jones U.S. Retail Index
has climbed 14% since March 22, but lost 1% today. The more specific
Dow Jones U.S. Broadline Retail Index
has gained 12.3% in the same span, but fell 2.8% in today's session.
Dreher thinks that "consumers are not spending hand over fist," but "they're still opening their wallets." He believes that consumer spending has leveled off, and that as a result of the market downturn of the last year, broadline retailers are stealing market share. When consumers have less money to spend, they look for the better values -- at broadliners like Wal-Mart. By the time the economy picks back up again, consumers may have already formed a loyalty to the less-expensive stores, having realized they can get better deals. Wal-Mart, for example, "has tremendous volume in grocery store items, which increases the frequency of shopping visits," Dreher said.
"That's not to say that everyone can benefit from leveled-off consumer spending," said Dreher. "I think the consumer is learning to be smarter with expenditures." The analyst has buy ratings on Wal-Mart,
Federated Department Stores
-- individual success stories that Dreher said aren't moving as part of a general sector uptrend.
Stacy Pak, a softline retail analyst at
(softline being mostly apparel retailers) has a somewhat more optimistic outlook for the retail sector as a whole. "It's not time to exit the group, but may be time to reallocate assets within the group," she said. "Our thesis is that the group will continue to outperform based on attractive valuations."
Pak's top picks are
, up 3.8% today to $34.47, and
Abercrombie & Fitch
, down 0.3% today to $39.22. Both have seen recent upward trends since the beginning of April.
"Wal-Mart, Kohl's and BJ's are going to continue to show nice comparable-store sales increases in the second quarter and the rest of the year," Dreher said. Despite Wal-Mart's rosy outlook earlier, the stock still fell 2.5% today to $53. The stock has climbed 15.9% since March 22. Dreher has a 12-month price target of $59 on the nation's biggest retailer.
Kohl's fell 1.2% today, but has gained 17.8% since April 12. BJ's slid 0.5% to $42.80 today and has fallen 2.7% since the end of March. Federated lost 0.9% to $43.55 today.
posted first-quarter earnings that were in line with estimates this morning, but the retailer lowered its guidance for the next quarter. The stock fell 5.3% to $19.94 today.