Nomura Securities on Retailers: A Look at SG&A Per Square Foot Over The Past Five Years
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Rating Summary:
7 Buy, 13 Hold, 1 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 0 | Down: 2 | New: 2
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Nomura Securities on Retailers: A Look at SG&A Per Square Foot Over The Past Five Years
Analyst, Paul Lejuez, said, "Back in 2008 and 2009, through the downturn, retailers cut store payroll, corporate headcount, and other expenses to maintain profitability. During that period, softline retailers cut SG&A/Sq Ft by 4-5%, while hardlines cut by 2.6% in 2008 and increased 0.6% in 2009. As trends improved, many retailers ramped up spending. If trends continue to slow in F12, who will be able to cut expenses again? We analyze what retailers have the most and least flexibility to cut expenses in another downturn.
Softlines Takeaways:
The biggest increases in SG&A/Sq Ft between 2007 and 2011 were from Limited (NYSE: LTD), TJX Cos (NYSE: TJX), Nordstrom (NYSE: JWN) and Lululemon (Nasdaq: LULU). We believe each of these companies would be able to cut back on expenses if necessary, but the high-service environments at LULU, LTD (VSS) and JWN would likely prevent management from cutting too much too soon."
"The biggest decreases in SG&A/Sq Ft between 2007 and 2011 were from Wet Seal (Nasdaq: WTSLA), Talbots (NYSE: TLB), Chico's (NYSE: CHS) and American Eagle (NYSE: AEO). Despite this, we believe AEO still has many expense opportunities remaining (even if sales do not slow), as new management runs the business more prudently. We believe CHS could also pull back on expenses if necessary, but would be careful about cutting advertising, as this would impact the top line."
Hardline Takeaways:
"The biggest increases in SG&A/Sq Ft between 2007 and 2011 were Advaned Auto Parts (NYSE: AAP), Family Dollar (NYSE: FDO), Dollar Tree (Nasdaq: DLTR) and Dollar General (NYSE: DG). Counter-cyclical retailers like these were able to spend more steadily...Bed Bath & Beyond (Nasdaq: BBBY) is the standout on the opposite side of the spectrum, having cut 10% in SG&A per foot from 2007-2011."
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Analyst, Paul Lejuez, said, "Back in 2008 and 2009, through the downturn, retailers cut store payroll, corporate headcount, and other expenses to maintain profitability. During that period, softline retailers cut SG&A/Sq Ft by 4-5%, while hardlines cut by 2.6% in 2008 and increased 0.6% in 2009. As trends improved, many retailers ramped up spending. If trends continue to slow in F12, who will be able to cut expenses again? We analyze what retailers have the most and least flexibility to cut expenses in another downturn.
Softlines Takeaways:
The biggest increases in SG&A/Sq Ft between 2007 and 2011 were from Limited (NYSE: LTD), TJX Cos (NYSE: TJX), Nordstrom (NYSE: JWN) and Lululemon (Nasdaq: LULU). We believe each of these companies would be able to cut back on expenses if necessary, but the high-service environments at LULU, LTD (VSS) and JWN would likely prevent management from cutting too much too soon."
"The biggest decreases in SG&A/Sq Ft between 2007 and 2011 were from Wet Seal (Nasdaq: WTSLA), Talbots (NYSE: TLB), Chico's (NYSE: CHS) and American Eagle (NYSE: AEO). Despite this, we believe AEO still has many expense opportunities remaining (even if sales do not slow), as new management runs the business more prudently. We believe CHS could also pull back on expenses if necessary, but would be careful about cutting advertising, as this would impact the top line."
Hardline Takeaways:
"The biggest increases in SG&A/Sq Ft between 2007 and 2011 were Advaned Auto Parts (NYSE: AAP), Family Dollar (NYSE: FDO), Dollar Tree (Nasdaq: DLTR) and Dollar General (NYSE: DG). Counter-cyclical retailers like these were able to spend more steadily...Bed Bath & Beyond (Nasdaq: BBBY) is the standout on the opposite side of the spectrum, having cut 10% in SG&A per foot from 2007-2011."
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