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number cruncher

Samuel Oubadia is a senior analyst at Lorne Steinberg Wealth Management in Montreal.

What are we looking for?

Given the success of online retailers, such as Amazon Inc. and eBay Inc., in recent years, many traditional brick-and-mortar retailers have been experiencing difficulties and losing market share. We wanted to take a closer look at some of these traditional retailers and determine if there are any that are both attractively valued and not expected to see a large decline in sales over the next year.

The screen

Using S&P Capital IQ, we screened for retailers that sell consumer staples. We limited our search to companies in North America and Europe, and that have a market capitalization of more than $1-billion (U.S.).

As a measure of valuation, we limited our search to retailers that had a trailing price/book value of less than two. We also only wanted to consider companies that had a debt/equity ratio of less than 1.2.

Finally, we also were also able to develop our screen to see which companies are expected to see stable revenues, or even some revenue growth.

What did we find?

The results of our screen can be seen in the table below. A few of the names, such as Loblaw Cos. Ltd., are certainly well known to Canadians. While the estimated sales growth of more than 30 per cent at Loblaw seems impressive at first glance, this actually highlights one of the problems with looking at retailers on this basis. The strong growth figure is attributable to Loblaw's recent acquisition of Shoppers Drug Mart. This is clearly not what analysts would view as organic growth as it does not represent Loblaw's "like-for-like" growth over the period.

Similarly, the strong estimated revenue growth at Office Depot, is a result of its recent merger with OfficeMax. Office Depot, which sells branded merchandise primarily to small and medium-sized businesses, plans to close at least 400 locations in the U.S., because of the overlap created by the merger. Clearly, the consolidation that is being seen in the retail industry is a direct result of the pressure that it is facing from the dramatic shift to online shopping.

Certainly not all the companies in the table are expected to undertake the same type of M&A activity as the two mentioned above. Investors are advised to do their own research before purchasing any of the stocks on this list.

Brick-and-mortar retailers – revenue growth screen

Company nameTickerMarket Cap. (US$-mil)P/BV (x)Est. Ann. Rev. Gwth (%)Total Debt/ Equity %
Office Depot, Inc.ODP-N 2,732.6 1.39 44.8 78.0
Loblaw Cos Ltd.L-T 20,074.6 1.73 32.0 103.4
ICA Gruppen ABICA OM 6,239.6 1.82 30.3 39.0
Aaron's, Inc.AAN-N 1,925.7 1.62 19.9 51.5
Empire Co. Ltd.EMP.A-T 6,487.6 1.24 14.9 60.9
Genesco Inc.GCO-N 1,854.2 1.98 7.77 3.52
Folli Follie S.A.FFGRP ATSE 2,811.4 1.77 5.67 18.5
Canadian Tire Corp. Ltd.CTC.A-T 7,712.6 1.6 4.51 62.4
Sonae SGPS SASON ENXTLS 3,003.4 1.38 3.57 115.8
Casino Guichard-PerrachonCO ENXTPA 13,643.8 1.34 3.02 76.7
Safeway Inc.SWY-N 7,921.2 1.41 2.96 68.4
Ascena Retail Grp Inc.ASNA-Q 2,622.2 1.52 2.11 13.1
J. Sainsbury plcSBRY LSE 9,905.4 0.977 1.71 47.4
Kingfisher plcKGF LSE 11,933.9 1.13 1.24 5.27
Kohl's Corp.KSS-N 11,140.8 1.91 0.37 82.3