02 December 2008

Retailer Death Watch Returns

Last month, I shared my retailer deathwatch picks: Pier 1, Restoration Hardware, and Design Within Reach.

JVL offered up West Elm, a division of Williams-Sonoma.

Fark linked to this story at 24/7 Wall St. with their ten picks. I've excerpted the shared picks:

4. Pier 1's (PIR) shares are on sale for $.50. A little less than a year ago they would have cost $8.25, making this a remarkable write-down. PIR said its Q3 same-store sales would be down as much as 18%. The firm says it has a $325 million credit facility, but the stock market clearly thinks that is inadequate. The company's guidance for the quarter sent shareholders running for the exits. In the last quarter, revenue fell 7% and the company lost $30 million. Pier 1 pulled its guidance because it believes it cannot predict how much the retail market will deteriorate. With $183 million in debt, it won't take much to tip Pier 1 into insolvency. UBS recently cut its price target on the shares.

6. Williams-Sonoma (WSM) operates 600 stores. The company is doing badly enough that Barclays Capital recently said that it may violate financial covenants on its $300 million credit facility. The retailer made a sharp downward revision in its forecasts. It said it would lose as much as $.12 a share in the third quarter against its previous projection of as much as a $.04 profit. It took its revenue forecast down as low as $732 million. The earlier projection had sales as high as $820 million. WSM also made extremely sharp cuts in its projections for the fourth quarter. Lenders take loan covenants more seriously in a recession than during other periods. WSM has to beat its numbers or face a chance of its lenders pushing for remedies. The CEO recently forced to sell over 60% of shares due to financial obligations.

What are the others on 24/7 Wall St.'s death watch? Bon-Ton Stores, Dillard's, Talbots, Cost Plus, Chico's FAS, Saks, Eddie Bauer, and Rite Aid.

I make no argument with any of these picks.

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