Retail Roundup

The retail sector might not be the financial black hole that most investors assume. Recent data suggests that there's a place to invest in select retailers who have, so far, avoided the huge losses plaguing the sector. The S&P Retail SPDR (NYSE:XRT) has recovered somewhat, and is up 12% year to date, but is still about 35% below its 52 week high of $34.72. To see if buying into the retail sector is worth it, let's take a look at some recent retail earnings reports and conference calls. (Find out more in Conference Call Basics.)

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Surprising Profitability
Cato Corporation (NYSE:CTR) just reported a profit for the fourth quarter and full year 2008, despite slight declines in same store sales in both periods. The company has no debt and $145 million in cash and short-term investments. Cato should get credit for achieving profitability with its store base by closing 102 stores in the fiscal year. Although its store base shrunk, as it only opened 65 stores, the result was profit, something that many of its peers can only dream about.

Ross Stores (Nasdaq:ROST) also had a profitable year with net income of $305.4 million in fiscal 2008. The company's cash holdings grew to $321.4 million at the end of the year, with long-term debt of only $150 million. Ross managed to increase its store base by 7%, or 66 stores, in the fiscal year. What both these retailers have in common is orientation toward value shoppers, which are increasing as the economy contracts. (Learn more in Find Investment Quality in the Income Statement.)

Adjusting to Purchasing Trends
The Children's Place Retail Stores, Inc. (Nasdaq:PLCE) reported a profit of $23.3 million, or earnings per share (EPS) of 79 cents per share in the fourth quarter of 2008, despite a comparable store sales decrease of 5%. The company ended the fiscal year in decent financial shape, with a cash balance of $226.2 million and total debt of $85 million. Management noted three trends impacting the sale of children's apparel. "Consumers are going to malls less frequently, they are making a greater proportion of their purchases on sale merchandise rather than full price and they are delaying purchases and buying much closer to need," said Chuck Crovitz, the CEO. It's clear that this retailer has dealt with these issues well, and maintained profitability.

Aggressive Promotions
Dress Barn (Nasdaq:DBRN) reported a comparable store sales decrease of 4% for the quarter and a 3% decrease for the first six months of its fiscal year. Management said that "aggressive promotions helped to both drive customer traffic and clear out seasonal inventory," which caused a slight loss for the quarter. Earnings per share guidance for fiscal 2009 was affirmed at a range of 70 cents to 85 cents. Dress Barn ended the quarter with cash and short-term securities of $260.8 million, compared to debt of $143 million.

The Bottom Line
Although the financial media has pronounced the death of retail due to a "collapse" in consumer spending, some retailers' results tell a different story. Many continue to be profitable with excellent balance sheets, and will emerge on the other side of the recession in fine shape. (Learn more about investing in these types of companies, read The Industry Handbook: The Retailing Industry.)