Amidst the chaotic year-end holiday push, some retailers and retail stocks are emerging as winners. While all the initial preliminary macro data suggested Christmas sales would be sluggish, perhaps no more than 2% above 2012, more recent data from the National Retail Federation (NRF) puts growth at 3.9% in November and at the same pace through the rest of the shopping season.
It is an admittedly bifurcated marketplace – people with money are spending it, people struggling are spending less than last year. But the NRF data and ChangeWave (part of the 451 Group) surveys show shoppers are spending in key segments.
Here are five big winners among retailers and retail stocks to buy this season:
I admit I have a personal bias. I love the merchandising in Williams-Sonoma (WSM) stores and believe it is the best in retail. Retail sales surveys and data indicate people are spending a good deal on fixing up their homes – from renovation to the purchase of pots and pans. Census Bureau data shows a more than 9% projected increase in home furnishing sales.
William- Sonoma will claim its fair share and probably more. Why? Walk the store and you see, every quarter, a bit more shelf space dedicated to everything in food and food preparation – from jars of sauces to three families of copper pots.
EPS growth has been in the double digits and is projected to be the same in 2014 even though the company sells at only a slightly greater multiple than the overall S&P 500.
Go to any outlet mall and the busiest store – with buyers, not just shoppers and tire kickers – is the Ralph Lauren (RL) Polo store. Unlike most competitors, the Lifshitz (Mr. Lauren’s birth name) designs and manufacturers products specifically for discounters and its outlet stores.
Consumer Reports rates Ralph Lauren’s discount products the closest to the products sold in the high-end company stores among all clothing makers. This barbell approach – $2,000 blazers in one store, $200 blazers (on sale at Macy’s this summer) at the low end give the company extensive market coverage and a great approach to this Christmas. The stock has been stuck for a while, it could break out based on this holiday shopping season.
Tiffany & Co.
Tiffany (TIF) did well when gold was above $1,600 an ounce. Gold is now below $1,250 and falling. Sales in Asia are bouncing back as some consumer optimism returns to Japan and the credit bubble continues to inflate in China.
As with Ralph Lauren, Tiffany has a broad, near bifurcated product line – $50,000 cufflinks and a $35 shot glass I once bought for a newborn (a long story that one). The company hedges precious metals purchases, meaning the full impact of the crash in precious metal prices will boost margins and profitability over a sustained period of time.
You would not think a retailer seen as a super-deep discounter would do well when people who end to shop at discount stores are hurting. Except Costco (COST) does not serve that market. Roughly half of sales are to small business, roughly half of their members are high-end earners and spenders; people living week to week do not shop there.
The company is exceptionally well-managed. It starts employees at $11.50 nationwide. Costco is growing while Wal-Mart (WMT) is not. The boom in electronics sales this Christmas – ChangeWave Research and the Census Bureau data back this up – is driving up sales per square foot at Costco and should lead to a great quarter.
Yes, Apple (AAPL) sells products as a retailer and by far and away is the best retailer on the planet. Apple’s stores have sales per square foot higher than any other – $6,050 in 2012. The next closest was Tiffany at $3,017, with Lululemon (LULU) a transparent third at $1,936.
My local Apple store, which is probably 70 feet by 25 feet in space, has 140-150 employees. Really. iPhone 5 sales are beyond brisk. ChangeWave Research tells us tablets are the No. 1 product this Christmas and Apple has 72% of that market. Wall Street is still worried — so much so that Apple is selling at discount to the S&P 500.