Lecture 9: A Value Investor in Retail Discusses ANN
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not significant, but what was happening for a good year and a half prior is that they weregenerating negative same store sales (SSS) and negative comp store sales. People throughoutthe industry could not focus on what type of business they were running.And they were generating EBIT margins close to 20%, amongst the highest in their peer group.And all anybody could focus on was on whether their next comp stores sales was negative. In2002-2003, you could have taken a step back and said, I recognize that comp store sales arenegative, perhaps there are merchandising issues here, but I can see they run a good businessand if they could stabilize that comp, if they could just generate at the bottom of those compnumbers
they were running negative 9, negative 5, negative 9, but once they could stabilize
their comps, people thought, ―Oh wow, look at this business!‖ This is a great business and all of
a sudden people were not just focused on the SSS but on what the actual business was doing.This article (included below) interviewing a money manager who covers retail stocks and hisquote is very similar to how a lot of people think about retail stocks and how most or all of thesell side thinks about retail stocks. Basically he said:I have my people visit stores and malls to see how much the items are marked down and howlong the lines are at the registers. I'll buy a stock if I think the company is going to beat numbersand short it if it is going to miss numbers. It is that simple.
INVESTING: King of the Retail Jungle
Tuesday, March 22, 2005
Hedge fund manager
profits by thinking like a patient predator."I used to be a victim of people like me," says hedge fund manager and onetime accountant
. "Every time I bought a stock, someone smarter than me was selling it. Everytime I sold, someone smarter was buying." So when he formed a firm to manage his own moneyin 1997,
decided to focus on a single sector and master it. His choice? Retail. This sonof a furniture maker spent a year walking malls and eventually developed a custom index
theDeeBee (as in
to compare sales vs. inventories at U.S. retailers. Hisspecialization strategy has paid off: Berman says he has averaged a return of 17% after feesover the past eight years with only three down months. He now manages more than $100million through Durban Capital, a hedge fund he named for his hometown in South Africa andlaunched in 2001. A big part of his formula is that he's willing not to buy if prices aren't right.FORTUNE's Julie Schlosser phoned Berman in Cape Town (where he spends three monthsevery year) to chat about the sector's latest batch of strong sales reports, why they don'tnecessarily bode well for stocks, and what investors can learn from crocodiles.
Despite lackluster holiday sales, the S&P 500 retailing index is up 11% for the past year.Can retailers keep beating expectations in 2005?
February surprised everybody, retailers included. It surprised me. There are a bunch of theorieswhy. Perhaps tax refunds are better than people thought they'd be. Fashions are pretty good.And I think weather has been a positive factor. It was about four degrees warmer than usualacross the country in February. But to a large degree, during this time of year the retail groupgets moved for macro reasons.
Which macro factors affect retailers?