Shoppers may fear tricks – but they’re really gearing up to buy treats — candy, costumes and pumpkins. This Halloween’s scary season is expected to ring up healthy sales at U.S. retailers.
The National Retail Federation says that total Halloween spending is expected to grow to a record $9.1 billion this year. That figure is up 8.3% from the $8.4 billion total spend in 2016 (Source: National Retail Federation, Halloween Headquarters). Most of the money will be spent on costumes and candy, followed by home decorations and greeting cards.
Retailers want a piece of the pie, and also see this season as a chance to boost sales and gain new customers. Wal-Mart’s U.S. CEO said the retailer sees Halloween as an opportunity to attract some new customers into the business (Source: Wal-Mart Stores Inc 2017 Investment Community Meeting, 10/10/17).
We take a look at three companies directly affected by Halloween trends.
Party City Holdings Inc. (PRTY.N)
This party supply and costume company announced last month that it’s recruiting 25,000 temporary seasonal workers for Halloween. What’s more, it plans to open over 270 Halloween pop-up stores for the spooky season.
However, StarMine models caution that the company has credit issues and that the stock price momentum is not in its favor. Likewise, its Credit Risk – SmartRatios Model score is a weak 16 out of a possible 100. This model looks at accounting ratio analysis, utilizing both financial statement data and forward looking analyst estimate data via the StarMine SmartEstimate. The score of 16 suggests that its Leverage Ratios look weak.
Exhibit 1: Party City StarMine Scores
Source: Thomson Reuters Eikon
Still, analysts polled by Thomson Reuters are optimistic that momentum and strong traffic will improve in the remainder of 2017. The retailer has also incorporated new tech advancements to track inventory in its stores, thus improving the shopping experience. Accordingly, revenue and earnings per share are expected to grow 6.1% and 7.7%, respectively, for Q4 2017 (Exhibit 2).
Exhibit 2: Party City Quarterly Results and Outlook
Source: Thomson Reuters Eikon
Hershey Co. (HSY.N)
This legendary candy company’s fourth quarter sales are expected to benefit as its products fill trick or treat bags. Thomson Reuters I/B/E/S suggests modest earnings and revenue for Q4, ending Dec. 31.
There have also been rumors that Hershey is preparing to submit a bid for Nestle’s U.S. confectionery business. The StarMine Earnings Quality Score for Hershey is 81 indicating cash flow and operating efficiency levels look strong (Exhibit 3).
What’s more, the Credit Structural and Text Mining Models are in the top decile. The Credit Structural Model score of 93 suggests that the company is very unlikely to default on its debt obligation over the next one-year period. The Text Mining Model applies sophisticated text mining algorithms to StreetEvents earnings conference-call transcripts, financial statements and other regulatory filings, Reuters News, and select broker research reports to identify language that is predictive of credit risk. Hershey scores a strong 92 on this model. However, its Credit Risk Smart Ratio is not as strong and suggests its leverage ratios could use some improving.
Exhibit 3: Hershey Co. StarMine Scores
Michaels Companies Inc. (MIK.O)
Halloween is a big deal at this arts & crafts and home décor chain. Anecdotally, the checkout lines at Michaels continue to get larger every year – almost an hour long at a New York City store in the week leading to Halloween. The retailer has been introducing everyday value merchandise, and its loyalty program has helped drive store traffic. It also continues to work on improving its omnichannel offering.
For the third quarter ending October 31, Michaels is expected to see a 6.4% growth in earnings, and a 2.7% growth in revenue. Its StarMine Earnings Quality Score of 97 indicates solid levels of cash flow, and strong operating efficiency. Finally, its Valuation Momentum score of 81 is being driven by Relative and Intrinsic Valuation Scores of 91, and 89, respectively, indicating that the stock is still cheap. Analysts polled by Thomson Reuters seem to be bullish on the retailer’s Halloween performance.
Exhibit 4: Michaels StarMine Model Scores