washingtonpost.com  > Business > Columnists > Washington Investing
Page 2 of 2  < Back  

Buyer Beware: Retail Stocks May Not Pay Off

Investors assume that if nothing else works, the company can sell its stores and make billions.

Then there's the strategy behind the Federated-May merger: to assemble the first truly nationwide department store group and take advantage of national advertising.

Retail Roulette Here's a look at how Wal-Mart and Kmart have performed since May 2003, when Kmart emerged from bankuptcy reorganization.
_____On The Web_____
The Global Research Analyst Settlement Distribution Funds Web site
The Securities and Exchange Commission's Web page with more details on the Global Research Analyst Settlement.
_____Investing Columns_____
Washington Investing
The Color of Money
Cash Flow
The Week in Stocks
Personal Finance Special Report
_____Previous Columns_____
Wall Street Is Stuck With Fannie Mae (The Washington Post, Feb 28, 2005)
A Telecom Capital No Longer (The Washington Post, Feb 21, 2005)
Few Will Receive Restitution Under SEC Settlement Decision (The Washington Post, Feb 14, 2005)
In the Forecast: Power of Choice For Natural Gas (The Washington Post, Feb 7, 2005)
Tiny SEC Filing Gave a Big Hint To Vastera's Plans (The Washington Post, Jan 24, 2005)
More Washington Investing Columns
_____The Markets_____
Dow Over 12 Months
Nasdaq Over 12 Months
S&P 500 Over 12 Months

But the first national department store chain could also be the last. Crossing May with Federated could create the ultimate dinosaur -- the best of a breed that some retail experts think is headed for extinction.

For now, however, the planned merger with Federated is making some money for long-suffering May shareholders. Their stock climbed to its highest level in 2 1/2 years last week, hitting $36.40 before closing Friday at $36.15.

Even at $36 and change, May has been a poor long-term investment. The stock was in the $33-to-$34 range five years ago and had drifted down to about $28 a share when takeover rumors surfaced, triggering a speculative bounce.

The merger rumors also resurrected the shares of Federated. Languishing in the upper $40s last fall, Federated stock had climbed $10 a share by the time the deal was announced a week ago.

Last week Federated stock hit $61.85 before pulling back to close Friday at $60.95. It was the first time Federated shares had topped $60 a share since the company came out of bankruptcy reorganization in 1992.

Especially at those pumped-up prices, buying Federated stock is really betting on the reinvention of department stores, whose share of the retail business has been steadily shrinking for decades.

Yet there are some stories of successful retail turnarounds to inspire optimists.

J.C. Penney Co., Nordstrom Inc. and Neiman Marcus Group were all considered troubled a half-dozen years ago, but now they are among the top-performing retail stocks.

Penney has accomplished what Sears and Kmart hope to do. It reinvented itself as a middle-America retailer, abandoning such locations as Tysons Corner that serve shoppers with more upscale tastes. Penney's found a way to offer better quality goods than Wal-Mart and Target without going head-to-head with conventional department stores.

Nordstrom and Neiman have been hot merchants, capturing free-spending upper-income customers and turning in double-digit sales gains while most department stores were growing slowly or, like May, steadily losing volume.

In less than two years, Neiman's stock has climbed from about $26 a share to $74.24 at the close of Friday's trading. (Its 52-week high is $76.78.) Nordstrom shares, which dropped to less than $16 in the summer of 2003, closed Friday at $53.91 after hitting $54.31 earlier in the week. (Its 52-week high is $54.69.)

Over the same time, Penney stock has climbed from about $16 a share to $46.84 at the close of Friday's trading. Target has also been on a roll. Its shares, which traded as low as $22 in 2000, hit$52.50 last week and closed Friday at $52.39. (Its 52-week high is $54.14.)

< Back  1 2

© 2005 The Washington Post Company