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Where is the Value?
Neil Currie is 20+ year Industry Veteran and 5-time member of the Institutional Investor All-America Research Team.
Neil has been profiled by various industry media outlets, including appearances on CNBC and Bloomberg LP TV.
The information herein was prepared December 16 2014 and is being provided as market commentary
only and is not to be considered a fundamental research product of Mischler Financial Group, Inc. The
information is neither a solicitation nor an offer to purchase or sell specific securities or other
financial products, nor is it a recommendation to engage in any form of trading activity.
Neil Currie
Managing Director
Consumer Markets Strategist
ncurrie@mischlerfinancial.com
Retail stocks have performed exceptionally well over the past month – so well, that it is becoming hard to spot
any value at all for long-term investors. The XRT, is currently reading at 91.73, just less than 2% off its recent
high and up 12% since early October.
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We understand why this has been the case, lower energy prices, wage growth, lower unemployment and (as a
consequence) rising consumer confidence are set to benefit retailers and, in particular, those retailers that
attract middle-income shoppers. In addition, the interest of private equity and activist investors has helped
raise valuations of some retailers, even if their fundamentals aren’t so strong.
Consequently, many retailers are trading at forward PE multiples well above their 5-year averages and it is
difficult to justify investing additional money in these names at this stage.
The table below looks at a wide range of retail names and compares their current forward PE to their 5-year
averages
12/16/14
Sector
Stock
PE
(Forward)
5 Year Avg
Difference
to Avg
Apparel
ANF
17.2
18.2
-5.2%
AEO
22.7
16.0
42.2%
ANN
22.0
16.1
36.3%
CHS
24.2
17.0
42.1%
DSW
22.5
18.0
25.2%
FL
16.3
14.7
10.8%
LB
24.8
16.7
48.7%
ROST
21.2
15.9
33.7%
DDS
15.0
13.0
14.8%
JCP
10.2
21.7
-53.2%
JWN
20.1
15.6
29.3%
KSS
14.4
12.2
18.1%
M
14.6
11.8
23.2%
Dept Stores
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Members FINRA · SIPC Since 1994
Mischler Financial Group is a fully-certified Service Disabled Veteran Business Enterprise
Sector
Discount
Drug
Specialty
Stock
PE
(Forward)
5 Year Avg
Difference
to Avg
TJX
21.2
16.2
30.8%
BIG
15.9
12.7
24.6%
COST
27.7
22.6
22.4%
DG
20.0
16.4
22.0%
DLTR
21.9
17.1
28.0%
FDO
25.9
16.8
53.7%
TGT
22.6
14.4
56.6%
WMT
16.9
13.6
24.4%
CVS
21.0
13.9
51.4%
WAG
20.6
14.8
39.0%
BBY
15.2
10.2
48.1%
BBBY
14.6
14.6
0.2%
CONN
8.7
15.9
-45.3%
DKS
17.8
18.8
-5.2%
GME
9.6
9.3
3.2%
HD
22.3
18.1
22.8%
LOW
24.7
17.2
43.7%
PETM
18.4
17.7
4.0%
SPLS
18.0
12.1
48.0%
TSCO
29.9
22.9
30.4%
Main Trading Desk Tel: 1.800.820.8640 · 949.720.0640 · FAX: 949.720.0645
Corporate Headquarters: 1111 Bayside Drive · Newport Beach, California
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www.mischlerfinancial.com
Members FINRA · SIPC Since 1994
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Sector
Stock
PE
(Forward)
5 Year Ave
Difference
to Ave
GROCERY
CASY
23.7
17.1
38.8%
SVU
14.1
9.4
49.5%
KR
18.6
12.4
49.6%
WMK
14.6
14.3
2.0%
WFM
28.3
30.9
-8.6%
SFM
45.5
63.0
-27.7%
TFM
25.3
32.0
-21.1%
THIS SECTION INTENTIONALLY LEFT BLANK
Main Trading Desk Tel: 1.800.820.8640 · 949.720.0640 · FAX: 949.720.0645
Corporate Headquarters: 1111 Bayside Drive · Newport Beach, California
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www.mischlerfinancial.com
Members FINRA · SIPC Since 1994
Mischler Financial Group is a fully-certified Service Disabled Veteran Business Enterprise
The stocks we most like fundamentally right now are Wal-Mart, Costco, Target and L Brands. However, we
think strong fundamentals are already priced in and we would be looking to better entry points before adding.
Main Trading Desk Tel: 1.800.820.8640 · 949.720.0640 · FAX: 949.720.0645
Corporate Headquarters: 1111 Bayside Drive · Newport Beach, California
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www.mischlerfinancial.com
Members FINRA · SIPC Since 1994
Mischler Financial Group is a fully-certified Service Disabled Veteran Business Enterprise
Of the above group, the stocks which look interesting to us from a valuation perspective are BBBY, DKS and
WFM.
Main Trading Desk Tel: 1.800.820.8640 · 949.720.0640 · FAX: 949.720.0645
Corporate Headquarters: 1111 Bayside Drive · Newport Beach, California
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www.mischlerfinancial.com
Members FINRA · SIPC Since 1994
Mischler Financial Group is a fully-certified Service Disabled Veteran Business Enterprise
Bed, Bath & Beyond (BBBY), coming off the back of a second quarter that featured comp sales growth of
+3.4%, is trading at a forward PE of 14.4x, just behind its 5-year average. BBBY’s customer base should benefit
from improving disposable income and is one to flag here. The stock has performed well of late, but is still
below its January peak and we could see some movement back towards those levels.
Dicks Sporting Goods has been issuing a decent, but not stellar fundamental performance of late. However, it
has not participated in the general improvement in retail valuations and could be one to watch from a positive
perspective. Golf and hunting re holding back DKS’s performance, but we view DKS as a solid company that
could attract interest from private or activist investors.
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Corporate Headquarters: 1111 Bayside Drive · Newport Beach, California
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www.mischlerfinancial.com
Members FINRA · SIPC Since 1994
Mischler Financial Group is a fully-certified Service Disabled Veteran Business Enterprise
Whole Foods Market (WFM) isn’t the growth stock it once was, but it remains one of the best food retailers
around and a brand re-launch and the company’s first national TV advertising could help see the company
become more of a mainstream brand. WFM oozes emotional content, something we think is vital in the
modern retailing world. WFM is still achieving good sales growth, despite tough compares, and continues to
open new stores at an attractive pace. We could see WFM performing better as it transitions through easing
sales compares in 2015.
Another stock that stands out as being well below its 5-year average is Abercromie & Fitch (ANF). However,
we believe this could well be a broken brand and, consequently, a value trap.
Main Trading Desk Tel: 1.800.820.8640 · 949.720.0640 · FAX: 949.720.0645
Corporate Headquarters: 1111 Bayside Drive · Newport Beach, California
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www.mischlerfinancial.com
Members FINRA · SIPC Since 1994
Mischler Financial Group is a fully-certified Service Disabled Veteran Business Enterprise
In general, we would take a watching brief – this has been a sound strategy in the past and we believe there
will be other opportunities to pick up our favored names for the long term.
Finally, for those willing to embrace more risk, Big Lots (LOTS) has recently fallen from its 5-year high, on the
back of disappointing Q3 results. The share price is down almost 22% since its late November high, after 3Q
comp sales did not match expectations, despite relatively easy comparisons. While fundamentally, the outlook
appears troubled for LOTS, especially as sales comparisons get tougher in Q1 of next year, if shares get
towards the mid $20s, the valuation may begin to look attractive to look a little more attractive to
strategic/financial buyers.
The information is being provided as market commentary only and is not to be considered a fundamental
research product of Mischler Financial Group, Inc. The information is neither a solicitation nor an
offer to purchase or sell specific securities or other financial products, nor is it a recommendation
to engage in any form of trading activity. All opinions and estimates included in this report are
subject to change without notice. This report is for informational purposes and is not intended as an
offer or solicitation with respect to the purchase or sale of any security. Mischler Financial Group,
its affiliates and their respective officers, directors, partners and employees, including persons
involved in the preparation of this report, may from time to time maintain a long or short position in,
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Main Trading Desk Tel: 1.800.820.8640 · 949.720.0640 · FAX: 949.720.0645
Corporate Headquarters: 1111 Bayside Drive · Newport Beach, California
Regional Offices: Stamford, CT; Boston, MA; Chicago, IL; Detroit, MI; Red Bank, NJ
www.mischlerfinancial.com
Members FINRA · SIPC Since 1994
Mischler Financial Group is a fully-certified Service Disabled Veteran Business Enterprise