Tabell’s Market Letter – January 15, 1965

Walston fTCo. …;…-,;..;.;;..;..,;; Inc. j; I L Member8 New York Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CHICAGO oFFICES COAST TO COAST AND OVEISEAS TABELL'S MARKET LEnER January 15, 1965 Current Price 42 Current Dividend Nil Current Yield KORVETTE (E. J.) INC. What is Korvette Such a question is certainly a peculiar way to begin a stock recommendation but, it seems to Long Term Debt 30, 925, 444 us, the question must be answered if one is to ap- Common Stock 4,274,456 shs. preciate fully the growth potential of this unique Sales – 1964-65-E 600,000,000 Sales – 1963-64 485, 2.60, 000 Earn. Per Sh. 1964-65-E 2.25 Earn. Per Sh. 1963-64 1. 58 l\1Ikt. Range 1965-62 – 57-215/8 company. There are many possible answers. To, begin with, Korvette is a retailer. If pressed furo ther,most.investors would say.that iLwas a discount house. This, however, is not true, at least not in terms of what discount house is usually taken to mean. Nor is Korvette a traditional department store operation, although it has taken on many aspects of such an operation. Perhaps the most accurate way of describing Korvette is to say that it has been, in the past decade, the prime innovator in a still continuing revolution in which the so-called discount house was an important but perhaps transitory phase. Prior to World War II, Arne rica's leading merchandiser was the department store, located in a centralized downtown area and stocking a broad line of all types of merchandise. The mark-up had to be relatively high and customers were not by price but by con- venience. At the end of the War, the more aggressive their customers to the suburbs. High mark-ups, how)p6er, e t re operators followed e ment store vulner- able, especially in the hard goods and appliance r s . this gap in their de- fenses that Korvette led the discounters in the e traditional weapon of the discounter was price, and to achieve this he uteM ervice, plain stores, and a narrw line of merchandise at first r str' I ard goods. Other changes institu- ted by the included-aggressive 'costand-inveritory contZQI and efficient Many ho ses c ealso one of the first to 11 i at this point. Korvette did not. It was scount concept could be broadened to include a full product line, inclu . othing, etc. Nor, indeed, was there any reason why the discount house shoul ur d with poor c;ervice, unattractive stores, and unimagina- tive displays. Since 19 1 Korvette City stares have been opened. These all include a broad line of merchan e ranging from appliances through clothir.g to furniture, auto equip- ment and groceries, are attractive and modern in the extreme and are still able to compete down the line on a price basis. The consumer is being served better than ever before and at lower prices. The success of Korvette's merchandising philosophy has been obvious and dramatic. In 1950, Korvette had one store with sales of 2 million. For fiscal 1964-65, sales will be over 600 million. Even more amazing, the greatest part of this growth has been financed internally. Yet, since 1962 it has been somewhat of a lackluster performer marketwise. The ostensible reason for this. is to be found in profit margins which have been in .an almost steady decline since 1961. If the decline in profit margins had been due to inefficiency, it would be one thing'-o-butJt.was.reallyadi-rect product of the company's growth.-Each new store has carried with it heavy start-up expenses and, as the size of the stores have grown, this expense has become even more burdensome. There are signs that this phase in Korvette's history may be passing. Start-up ex- pense will continue in 1964-65, but relative to sales will be lower than in prior periods. Some improvem ent in margins, along with the sales gain is looked for. The recently voted acquisition of Hill's Supermarkets will lend management strength to the disappointing grocery set- ment of the Korvette City operations, and with margins increasing along with sales, per share earnings could move ahead to 2.25. From a technical point of view, the stock has an upside objective of 60 to 80 over the long term. It is again suggested for inclusion in capital gains accounts. Dow-Jones Ind. 891. 15 Dow-Jones Rails 212.93 ANTHONYW,TABELL WALSTON & CO, INC. ThIS market letter IS not, and under no circumstances IS to be construed as, nn offer to.II1I or a Hollcltation to bu)' any securttles referred to herein. The information t d h in is not guaranteed as to accuracy or completeness and the furnishing IS not, and under no circumstances IS to be construed as, 8 repreaenta- b8 nc W &. Co Inc All expressions of opmlOn are subJect to chanltc wlth;)ut notice Walston & Co., Inc, and Officers, Directors, Stockholders and sell and may have an Interest In the securities herem. ThiS 18 mtended and presented merely 88 a general, Informal on day to day market news and not aA a complete analYSIS Additional information With respect to any seCUrities referred to herein furnished upon request