UPDATE 1-BUY OR SELL-Where to invest in retail in the holidays?

Δημοσιεύθηκε: 1 Δεκεμβρίου 2008 - 19:28

By Aarthi Sivaraman

NEW YORK, Dec 1 (Reuters) - Shoppers spent more on bargains over the Black Friday weekend, but the deep discounts offered by U.S. retailers are expected to sap already-thin profits.

Retail shares sank on Monday after analysts said an early rush of sales would not save what could be the worst holiday shopping season in nearly two decades.

The National Retail Federation still expects total holiday sales growth to be the worst in six years.

Adding to retail woes, the National Bureau of Economic Research declared on Monday that the U.S. economy fell into recession in December 2007.

Analysts are singling out retailers who offer the lowest prices as likely to benefit from consumer preferences this holiday shopping season.

They view luxury-goods chains as carrying particular risk.

Some are worried about electronics retailer Best Buy Co Inc , which is getting squeezed by discounts from Wal-Mart Stores Inc and also faces unwelcome competition after rival Circuit City filed for bankruptcy. The latter is closing 155 stores and selling inventory at those stores at fire sale prices.

Others think Best Buy has a chance to benefit from demand for electronics and Circuit City's store closures.

WINNERS

'We like Best Buy and hhgregg because we think that consumer electronics is still a category that's in very high demand and we also think those companies will benefit from the 155 stores that Circuit City is in the midst of closing right now,' KeyBanc Capital Markets analyst Bradley Thomas said.

Charles Grom, a JPMorgan analyst, said customers seemed more willing to buy 'non-doorbuster items' at discounter Wal-Mart and department store chain Kohl's Corp on Black Friday, as opposed to shopping at retailers with higher prices, such as Target Corp, or that have fewer sales events, such as Nordstrom Inc.

'We expect Wal-Mart to remain a standout in our group again in November, with positive traffic trends and seasonal strength carrying forward from the October pace,' he said in a research note. 'We're modeling SSS (same-store sales) up 2 percent in November, one of the few retailers in our space with a positive comp in the month.'

Among online retailers, Amazon.com Inc seemed ahead of competition, JPMorgan said, citing a survey of 766 U.S. consumers.

Stifel Nicolaus analyst Scott Devitt also saw Amazon as a better choice than rival eBay Inc, which he said had turned into more of a niche marketplace.

'As an investor, we would prefer to own shares of Amazon.com, a company with still a significant market opportunity ahead and a business built for the long-term since inception,' he said in a note.

In the department store sector, Macy's Inc 'should be able to manage through these tough times satisfactorily,' said Richard Jaffe, a retail analyst with Stifel Nicolaus. 'I don't think anybody is expecting a pretty holiday season or (an) attractive earnings report from anyone this fourth quarter. It's to manage through and to live another day,' he said.

Off-price retailer TJX could be a winner this holiday season as consumers seek out brand names at low prices, Jaffe added.

LAGGARDS

Spending cutbacks from affluent consumers who have seen the financial crisis shrink their stock portfolios have hurt sales at chains like Saks Inc and Nordstrom, which may not recover, JPMorgan's Grom said.

'A deteriorating luxury consumer will likely remain the topic de jour again in November as we're expecting some of the most discouraging prints of the year from Nordstrom and Saks, down 30 percent and 25 percent respectively,' he said.

Best Buy's results were mixed over the holiday weekend as consumers sought out electronics, but continued to gravitate to Wal-Mart for better prices, a Pali Capital analyst said.

'The data and stores we have seen do not change our thesis that 2008 will be a rough holiday season for Best Buy,' Pali analyst Stacey Widlitz said in a note. 'We would continue to avoid the stock, even at historically cheap levels.'

KeyBanc's Thomas said he was also cautious on home goods retailers Pier 1 Imports Inc and Williams-Sonoma Inc , as the sector suffers due to consumer cutbacks.

'We like some of the merchandising changes (at Pier 1) but unfortunately it's very difficult to execute a turnaround in this kind of environment. We think they're having a tough time,' he said.

Thomas added: 'The same holds true for Williams-Sonoma. That's a company that we downgraded to a 'sell' a little over a month ago, and sales have really deteriorated. Furniture sales we think have really fallen off of a cliff.'

(Additional reporting by Sarah Coffey and Martinne Geller in New York and Karen Jacobs in Atlanta, editing by Matthew Lewis) See http://www.reuters.com/news/globalcoverage/holidayshopping for Reuters holiday coverage and http://blogs.reuters.com/shop-talk/ for Shop Talk -- Reuters' retail and consumer blog. Keywords: USA HOLIDAYSALES/ Keywords: USA HOLIDAYSALES/ Keywords: USA HOLIDAYSALES/

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