Retail Stocks in a Down Economy: 3 Winners, 3 Losers

As mid-price stores stumble, high-end stores soar

   
Retail Stocks in a Down Economy: 3 Winners, 3 Losers

If you’re looking for signs that the economy is sputtering, look no further than the retail sector. August retail sales were flat and July sales were revised downward. Even worse, the jobs outlook remains grim, with unemployment stubbornly stuck at 9.1% and little new hiring planned for the holiday shopping season.

Add to that the news that new housing starts fell by 5% last month — the largest drop since April — and it’s clear that consumers have a lot of reasons to hold onto their money. And since consumer spending accounts for a whopping 70% of the U.S. economy, the frugal consumer is the enemy of recovery.

All retailers are feeling the pinch of the sluggish economy, but the pain index is different. While shares of many mid-level retailers are struggling, some high-end companies are soaring. Here are three retail winners and three losers in this sluggish economy:

Winners

Lululemon (NASDAQ:LULU). Shares of the high-end women’s athletic apparel company have been on a tear this year. At $61.39, the stock is trading nearly 196% above its 52-week low last September. With a market cap of $8.80 billion, LULU has a price/earnings-to-growth ratio of 1.84, which indicates the stock is overvalued. The debt position is good: $264.73 million in total cash and no debt.

Ralph Lauren (NYSE:RL). RL is an ultimate American luxury brand that specializes in classic elegance — and its international growth strategy isn’t priced in yet. Shares set a new 52-week high of $151.70 on Monday — more than 78% above the 52-week low last September. With a market cap of $14.01 billion, RL has a PEG ratio of 1.78, indicating the stock is overvalued. The balance sheet looks good, with total cash of $951.5 million versus total debt of $304.4 million. The dividend yield is 0.5%.

Coach (NYSE:COH). This American accessories brand is a fashion thoroughbred, and its stock is running pretty well, too. At $60.25, the stock is trading more than 47% above its 52-week low last September. With a market cap of $17.41 billion, COH has a PEG ratio of 1.29 — slightly overvalued. Coach’s debt position is good: $702.04 million in total cash and $24.16 million in total debt. The dividend yield is 1.5%.

Losers

The Gap (NYSE:GPS). The best news here is the chain’s expansion into Russia. At $17, GPS is trading more than 28% below its 52-week high of $23.73 in May. With a market cap of $8.68 billion, The Gap has a PEG ratio of 1.41, meaning the stock is slightly overvalued. The company has total cash of $2.18 billion and total debt of $1.65 billion.

Urban Outfitters (NASDAQ:URBN). The best shot for recovery is this chain’s online expansion. At $24.88, URBN set a new 52-week low of $23.50 on Sept. 7 and is trading more than 36% below its 52-week high of $39.26 in March. With a market cap of $3.82 billion, the stock has a PEG of 0.92, indicating that it’s slightly undervalued. The company has $285.73 million in total cash and no debt.

Kohl’s (NYSE:KSS). Kohl’s same-store sales slipped by 4.6% in July and another 1.9% in August. KSS will come back into favor, but likely not until 2012. At $47.37, KSS hit a new 52-week low of $42.14 earlier this month and is trading more than 18% below its 52-week high of $58 last November. With a market cap of $12.76 billion, the stock has a PEG ratio of 0.8, indicating that it’s undervalued. Kohl’s debt position warrants watching: The company has total cash of $1.17 billion versus total debt of $3.69 billion. For the first time, KSS began paying dividends in March — the current yield is 1.9%.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/2011/09/retail-stocks-lululemon-ralph-lauren-coach-gap/.

©2014 InvestorPlace Media, LLC

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