Most retail companies are expected to have a good fourth quarter earnings on account of attention paid to inventory management and cost-cutting measures undertaken by the retailers. Berman's DeeBee index, which measures the pace of inventory to sales growth for 170 retailers, turned positive in September as well as October, with sales growing faster than inventories. International Council of Shopping Centers sees a tepid 1% rise in sales while Customer Growth Partners, a Connecticut-based consultant forecasts 2.4% growth in holiday sales.
Barron's has come up with five companies with well managed inventories which trade at appealing valuations.
Best Buy (NYSE: BBY) had an inventory-to-sales-growth ratio of 84% in the last fiscal quarter which means inventories grew by less than sales. Best Buy trades for 14 times estimated earnings of $2.94 a share.
Dollar Tree (NASDAQ: DLTR) has seen 12% increase in Sales versus a 3% increase in inventory. The company has benefited from deflationary pressure on costs, and an influx of new, price-conscious shoppers.
Barron expects specialty retailer Gap (NYSE: GPS) to do well on account of better cost controlling measures and earnings boost. Gap has also launched a big advertising and marketing campaign. It trades for 15 times fiscal 2010 earnings estimates of $1.50 a share.
Upscale retailers Coach (NYSE: COH) trades for 17 times fiscal 2010 estimated earnings of $2.08 a share. The company is introducing a less expensive Poppy line for teens and young adults.
Specialty-apparel company Chico's FAS (NYSE: CHS) has managed to reduce inventories by 9% in the period, even as sales grew 4%. Chico’s has $2 a share in cash, and its stock, at 13, fetches 20 times '11 estimates.
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