My InvestorPlace colleague Dana Blankenhorn recently wrote about the death of retail stocks. His conclusion was simple. Only those retailers who are saving people time and/or money will survive.
End of story.
Whether you’re brick-and-mortar, online only, or omnichannel, consumers are no longer interested in a leisurely stroll at the mall. They want to get in and get out. Even better if they never have to step foot in one ever again.
Of course, I’m simplifying Dana’s conclusions.
He does mention several old school retailers who’re doing well including Kohl’s (NYSE:KSS) and Target (NYSE:TGT), but if you work in retail and are looking for a happy ending, Dana’s not the person to perk you up.
I don’t see retail in quite the same light. Sure, stores are still closing, but it’s my belief that everything happens for a reason. In this case, retailers opened too many stores, and landlords willy-nilly took on their leases with no thought about the long-term health of their malls.
Across the globe, there continue to be stories of retail stocks winning in 2019 and beyond. These are my best bets.
Tractor Supply (TSCO)
Any time I read a story about this Tennesse-based lifestyle retailer, I’m tickled pink.
I haven’t written about Tractor Supply (NASDAQ:TSCO) much in recent years — I recommended TSCO stock in March 2015 shortly after it was added to the S&P 500 — so when I saw Market Watch contributor Tonya Garcia’s recent story about the company, I just had to put it on my list.
As Garcia states, Tractor Supply serves consumers looking for the rural lifestyle. The weekend warrior if you will.
“We sell everything else but the tractor. Anything for an authentic rural lifestyle,” Mary Winn Pilkington, vice president of investor relations and PR at Tractor Supply, told Marketwatch. “We like to say that our team members not only know our customers names, we know their animals names.”
The beauty of Tractor Supply is that almost everything it sells you can buy elsewhere. However, by going to TSCO, you’re avoiding multiple stops. That’s one of its biggest advantages. The other is a loyalty program 11-million strong that generates half its annual revenue.
Should the economy go in the tank, Tractor Supply is a retail stock that won’t be nearly as vulnerable to shifting consumer sentiment.
I got my wife a LULU gift card for our wedding anniversary in February. We recently stopped in at the only Lululemon store currently open in Halifax; it was packed on a Saturday afternoon. So busy, in fact, that we decided to leave because we couldn’t any service.
Now don’t misinterpret what I’m saying.
Would I have liked to have gotten better service? Sure. But if you know anyone who’s worked in retail for a long time, sometimes a store gets so busy, service standards go out the window. I’ve been in plenty of LULU stores and know it generally brings good service to the table.
I’ve been recommending LULU stock for a number of years because its apparel for both women and men is outstanding. So too are its same-store-sales growth and profit margins. It also doesn’t hurt that analysts like it.
“Lululemon has an enviable competitive position with a powerful combination of highly productive stores, aspirational proprietary product, a healthy e-commerce channel, and the potential to still more than double revenue as the concept continues to expand around the globe,” analysts from William Blair wrote.
I couldn’t agree more.
Canada Goose (GOOS)
Although I picked Canada Goose as the best stock for 2019, I personally wouldn’t own it given I disagree with its treatment of coyotes and geese. Recently, Bill Maher, the host of HBO’s hit show, Real Time, had some not-so-kind words for the company.
“New rule: No more d**ches. I mean the hipster d**ches who piss away $1,000 on a Canada Goose parka and the hipsterazzi who max out their credit cards to look like them,” Maher said.
He went on to describe how coyotes and geese are mistreated in the name of commerce. To be fair, Canada Goose maintains that PETA misrepresents the truth and has for some time. Suffice to say, it’s an ongoing debate.
However, just because I disagree with the company’s choice of materials, doesn’t mean I can’t defend its business model. From a purely business perspective, its sales growth, profit margins, and perfect balance between wholesale, brick-and-mortar, and e-commerce makes it a very competitive retailer.
CEO Dani Reiss is a billionaire as a result of the company’s success. If he and all of the other Canada Goose employees can sleep at night, who am I to doubt the veracity of its claims.
Best Buy (BBY)
MarketWatch contributor Jeff Reeves recently published an article that counters the idea that brick-and-mortar retail is dead. Best Buy (NYSE:BBY) and the next two stocks that follow are three of Jeff’s ideas that I also believe make sense.
The Best Buy of today is nothing like the struggling electronics retailer CEO Hubert Joly took over in 2012.
In six years, it’s figured out how to utilize its overly large real estate footprint, to battle Amazon (NASDAQ:BBY) in the e-commerce arena, something no one could have imagined it could do when Joly came on board. It’s one of the biggest success stories in 21st century retail.
On February 27, Best Buy announced adjusted earnings per share in the fourth quarter of $2.72, 16 cents higher than the consensus estimate. Equally as impressive, analysts expected same-store-sales growth of 1.8% in the quarter. It delivered 3%, well ahead of expectations.
To celebrate the solid year, Best Buy also announced it was increasing its quarterly dividend by 11% to $0.50 a share. Paying $2 on an annual basis, BBY stock yields a healthy 3.0%.
In fiscal 2020, Best Buy expects earnings per share as high as $5.65 a share, 6% higher than the past year.
As long as Joly is in the top job, all is well at Best Buy.
Bed, Bath & Beyond (BBBY)
Although Best Buy and Bed, Bath & Beyond’s (NASDAQ:BBBY) stock tickers are very similar, the state of their businesses, not to mention their respective valuations, are entirely different.
As Reeves suggested, BBBY is a value play, trading at 8.5x forward earnings and 0.2 times sales. By comparison, BBY is trading at 12.1x forward earnings and 0.4 times sales. That’s a big difference when you consider that its stock is up 35% year to date through March 7.
Before we get too excited, it’s important to remember that Bed, Bath & Beyond’s business has been in decline for a couple of years. A better-than-expected Q3 2018 report in January helps, but when you’ve been experiencing declining same-store sales for several quarters, that’s not going to get BBBY’s stock price back into the $80s where it traded in 2015.
On the plus side, BBBY finished the third quarter with $1 billion in cash and short-term investments, double the amount a year earlier. In the first nine months of 2018, Bed, Bath & Beyond’s free cash flow was $408 million, 79% higher than in the same period last year.
I could think of worse things to do than getting paid $0.64 annually in dividends (4.1% yield) while you wait for BBBY stock to revert to its historical norms. It’s not a slam dunk mind you, but if you’re a value investor, it’s still reasonably cheap.
Five Below (FIVE)
After three consecutive years with annual total returns of 20% or more, discount retailer Five Below (NASDAQ:FIVE) appears to be taking a breather so far in 2019.
I first jumped on the Five Below bandwagon in April 2017 arguing that its $5 or less concept was very attractive to teens and pre-teen customers. As a result, it would deliver strong returns for shareholders over the next decade.
I still feel this way.
On March 7, Oppenheimer initiated coverage of the company with an “outperform” rating.
“It operates a unique and defensible small-store format and enjoys significant opportunity for further, outsized unit expansion, for the foreseeable future,” Oppenheimer analysts stated in a note to clients. “Improving brand recognition and a superior merchandising acumen position FIVE to capture share as other, less well-positioned operators falter… In our view, investors are apt to continue to pay up for industry-leading sales and EPS growth prospects…”
Unless you live in Europe, you might not have heard of Bernard Arnault, CEO of LVMH (OTCMKTS:LVMUY), the company behind Christian Dior, Louis Vuitton, Glenmorangie, Veuve Clicquot, Guerlain, TAG Heuer, DFS, and Sephora.
On March 7, Arnault moved into third place on the Bloomberg Billionaires Index with a net worth of $83.1 billion, surpassing Warren Buffett.
Arnault got started in luxury goods in 1984, buying the bankrupt company that owned Christian Dior. Selling all of that company’s assets (except for Dior), he piled that money into buying a majority stake in LVMH. The rest is history.
In February, rumors started to circulate that LVMH was interested in acquiring Pernod Ricard (OTCMKTS:PDRDY), the French-based spirits company, whose brands include Chivas Regal, Absolute, Havana Club, and Jameson.
While the Pernod-Ricard brands aren’t nearly as high end as LVMH’s, a possible deal in partnership with Diageo (NYSE:DEO) could allow it to buy back the 34% Diageo holds in LVMH’s drinks business.
With LVMH and Five Below in your portfolio, you’ll cover the entire spectrum of consumer taste.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.