Analyst calls time right for apparel stocksIf Kenneth M...


August 24, 1993|By Michael Dresser | Michael Dresser,Staff Writer

Analyst calls time right for apparel stocks

If Kenneth M. Gassman Jr.'s hunch is correct, the threadbare American consumer will be donning plenty of new apparel this holiday season -- giving retailers a season to be jolly despite prevailing Scrooge-like sentiments.

Recent consumer-confidence surveys have shown Americans more pessimistic than at any time since last year. But the veteran retail analyst with Davenport & Co. of Virginia strongly recommends that investors place their bets on the struggling apparel sector -- from retailer through manufacturer.

"Unless you believe that consumers -- women in particular -- are ready to start wearing those proverbial barrels when their current wardrobe wears out, then we believe apparel stocks have a future . . . and apparel stocks should be bought now," he asserts.

Mr. Gassman, a fervent believer in the adage that "money burns a hole in the American consumer's pocket," notes that retailers who depend heavily on clothing sales have been poor performers all year. Most of the apparel stocks he follows are down 30 percent to 50 percent from last year.

Sluggish apparel sales have created a distorted picture of the retail economy this year because specialized clothing, discount and department store chains dominate the list of companies that report monthly sales, he says. Look behind those numbers and you'll see strong gains in durable goods this summer, he contends.

Besides a weak economy, Mr. Gassman cites a slew of reasons for this year's sluggish sales:

* Weather: "Too cool, too hot, too wet, too dry -- all at the wrong time!"

* Fashion: "Scared" manufacturers stuck to basics and consumers weren't turned on.

* Timid retailers: Stores cut back on assortments.

* Consumer jitters: The budget debate and layoffs created a climate of uncertainty.

Now, after two weak apparel seasons, Mr. Gassman expects pent-up demand among consumers. "Historically, it is rare to go through three weak apparel seasons," he says.

And he sees the first glimmers of a fashion revival. "What I've seen in the stores in the past two weeks is that manufacturers are stepping out a little bit." That would be good news for Joppa-based Merry-Go-Round Enterprises, which has been especially parched during the fashion drought.

Both literally and politically, Mr. Gassman thinks the climate for clothes-buying has improved. Spring-like August weather over much of the East should spur fall sales, he contends. And with the budget battle over, he expects consumers to realize that the "psychological tax bite" was heavier than the actual cost for 98.5 percent of American consumers.

"Mass-market America will not be significantly affected by Clintonomics," he says, noting that taxpayers with incomes under $30,000 will get a break through the earned income tax credit.

President Clinton's "modern-day Robin Hood" economics won't help Nordstrom Inc. and CML Group much, Mr. Gassman says. But it could boost the prospects of such chains as Family Dollar Stores, S&K Brands and Wal-Mart Stores, many of whose customers are in that tax bracket.

Food Lion to cease monthly sales reports

Food Lion Inc., which proudly announced its sales on a monthly basis, will dam the flow of information after months of discouraging news following a "Prime Time Live" report questioning its sanitation practices.

The Salisbury, N.C.-based grocery chain cited a desire to shift investors' focus away from short-term results and to avoid giving an advantage to competitors, but some analysts who follow the company aren't buying it.

"We view this as a major error," said a report from Prudential Securities. "While management suggests that this is not an indication of a bunker mentality, it certainly gives that appearance."

Mike Mozingo, Food Lion's spokesman, denies the company is huddled in a bunker. "We've had several other analysts tell us it was a prudent thing to do," he said.

During Food Lion's second quarter, which ended June 19, sales at stores open at least one year declined 4.8 percent from the previous year. The company has announced plans to curtail its once-rapid expansion from 100 to 110 stores in 1993 to 40 to 50 in 1994.

The company's Class A shares, which traded above $18 in late 1991, has plunged since then to close yesterday at $6.03, near the $5-to-$6 range at which Prudential said it would revisit its current "sell" rating.

With the announcement earlier this month that Food Lion has settled the Labor Department's wage-and-hour and child-labor case against it for $16.2 million, the worst of the bad news about the beleaguered company could be over. Bottom-fishers might want to take a look, but analysts aren't predicting a quick rebound.

Shoe store steps into new quarters

New York City Shoes, one of the survivors in the spike-heeled competition of the women's shoe business, has just moved into renovated quarters at 9946 Reisterstown Road in Owings Mills.

Founder and President Gail Kandel says the new store is an upscale version of the business, which started out selling shoes at a fixed price of $11.90. Now, New York City Shoes carries footwear priced from $30 to $450.

New York City has hung on as an independent in a tough corridor where independents have been wearing out like flimsy heels. Recent casualties include Step In and Shoepermarket.

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