January’s winter storms have caused revenue shortfalls for most brick-and-mortar retailers. With reduced traffic due to poor driving conditions,people unable to make it out to the mall look to ordering online, instead.
Companies such as Amazon (AMZN) and Overstock (OSTK) should be ideally situated to cope with the weather-related issues currently plaguing the retail industry. While traditional retail has fared miserably in 2014, it’s logical that online-only retailers have performed better over the same period.
Intuitively, I have to believe this is true. But investors can’t rely on intuition alone. We need concrete facts. Pulling together as much empirical information as possible, I’ll look at whether there are any good stocks to buy when it comes to online-only retailers.
ZU Stock: Flash Sales
Zulily (ZU) gained 36% Tuesday after delivering its first quarterly report as a public company. The Wall Street Journal does a good job explaining why ZU stock is up 166% since its November IPO. The most important thing about Zulily’s business model is that it’s focused on busy moms who don’t have a lot of time to waltz through shopping malls looking for great buys.
In the span of a year, the number of active customers (at least one purchase annually) has doubled to 3.2 million. The revenue derived from each customer is increasing by about 10% per year. Most importantly, its customer retention is through the roof. According to its prospectus, 83% of its U.S. orders through the 12 months ended September 29, 2013, were from existing customers. Those three stats paint a very nice picture for ZU stock.
While it’s true that Zulily’s target audience are mostly women who already shop online, it’s probably equally true that poor weather in January ramped up their online purchasing. If you can’t get out and you need something, your only option is to order it online. On the downside, Zulily takes about 11 days to fulfill the average purchase due to its just-in-time inventory ordering system.
As a result, most customers likely weren’t ordering anything that was needed immediately. However, its revenue guidance for the first quarter was $225-$235 million — higher than the consensus estimate of $223 million. Some of the difference could be weather-related, but nothing material in nature.
So, should you buy ZU stock?
With the gains ZU stock has already booked combined with a valuation that is sky high, my inclination is to suggest waiting until other online-only retailers go public like Gilt Groupe and others. That gives you time to further assess the opportunity presented by flash-sale retailing. In the long-term (3-5 years), I think ZU stock will do well, but at the moment it’s priced for perfection.
Who’s Buying Online
Well, we know moms are. But according to the Commerce Department, sales at internet stores fell 0.6% in January, the largest decline since May 2013. More surprising is the fact that retail stores overall saw a 0.4% decline in January — 20 basis points less than online-only stores.