Buy L Brands, Not Sears

Advertisement

It’s no secret that the American consumer is driving the U.S. economic recovery, and some retailers stand to profit in a considerable way.

Limited Brands LTDHowever, the January retail sales report from a few weeks ago is proof that not all retailers are benefiting equally from recent increases in consumer spending. Consumers are definitely out and about spending, but the spending patterns have been sporadic.

While consumers have more money in their pockets, they just cannot make up their minds on where to spend it.

So, today let’s look at two major apparel and home goods retailers — Sears Holdings Corp (NASDAQ:SHLD) and L Brands Inc (NYSE:LB) — and see which is a screaming buy at current prices and which should be avoided at all costs.

Sears Holdings Corp (NASDAQ:SHLD)

Sears is a retailer that operates in the U.S. and Canada. Sears’ brands include Kenmore, Craftsman and DieHard. Sears also owns Kmart Corporation, which sells brands like Joe Boxer and Jaclyn Smith. Sears has over 1,700 full-line and specialty retail stores in the U.S. and in Canada. SHLD brought in $31.2 billion in revenue last year, a $5 billion decrease over 2013.

SHLD sold off yesterday following its fourth-quarter earnings announcement. While Sears narrowed its net loss to $159 million and beat earnings expectations, SHLD continues to struggle with sales. Compared with Q4 2013, net sales plunged 24% to $8.1 billion, missing the $8.3 billion consensus estimate by a sizeable margin. During 2014, Sears had to close 234 underperforming Kmart and Sears full-line stores.

Sears has fallen behind the competition thanks to a lack of innovation and the fact that its customer base was hit harder than usual by the slow economic recovery.

So, with such a lackluster earnings announcement, investors are still leery of SHLD. SHLD is a C-rated “hold,” at best. Then again, once the latest earnings results are plugged into Portfolio Grader, I wouldn’t be surprised to see Sears stock get downgraded back to a “sell.”

L Brands Inc (NYSE:LB)

L Brands is a specialty retail company that operates roughly 2,975 stores throughout North America under the Victoria’s Secret, PINK, Bath & Body Works and La Senza (Canada only) brand names. LB also has a robust online and catalog sales business. L Brands was formerly known as Limited Brands and changed its name in March 2013.

Originally, LB focused on apparel, operating two clothing store chains — the Limited and Express — but sold those ventures in 2007 to focus on its core businesses, Victoria’s Secret and Bath & Body Works. L Brands also owns apparel importer, MAST Industries; luxury department store operator, Henri Bendel; and The White Barn Candle Company.

Both Victoria’s Secret and Bath & Body Works have become popular mainstays in shopping districts and malls across the country, which was reflected in the L Brands’ fourth-quarter results. Compared with the year ago quarter, profit jumped 15% to $564.8 million or $1.89 per share.

Analysts were expecting $1.80 earnings-per-share. So, L Brands posted a 5% earnings surprise. Over the same period, LB stock’s sales rose 7% to $4.07 billion; this also topped analysts’ estimates of $4.03 billion. Meanwhile, same-store sales jumped 6%.

Looking ahead to Q1 2015, L Brands expects earnings of 50 cents per share to 55 cents per share. For fiscal year 2015, L Brands is targeting $3.45 to $3.65 EPS. This is a cautious guidance, as the analyst community is calling for earnings of 62 cents per share in the first quarter and $3.83 per share for fiscal year 2015.

Despite the conservative guidance, L Brands released a generally solid report. I consider LB an A-rated Strong Buy. So, if you’re considering adding a retail play, sales and earnings should be at the top of your checklist — buy L Brands over Sears.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2015/02/buy-l-brands-lb-not-sears-shld-retail-stocks/.

©2024 InvestorPlace Media, LLC