The stock market got off to a red hot start in 2018. By the end of January, the S&P 500 was up nearly 6%, its best month in almost two years.
But then inflation and trade war concerns hit in February. Those were followed by broad concerns with the technology sector in March. By the end of March, the stock market’s red-hot January turned into a quarterly drop.
But not all stocks fell with the market in the first quarter. Indeed, some stocks had some pretty big first quarters, and a lot of them were mall-based retailers.
Surprised? Don’t be. Last year, traditional brick-and-mortar retailers were priced for negative news to exist into perpetuity. But while investors were worried about the Amazon.com, Inc. (NASDAQ:AMZN) threat, these left-for-dead retailers were adapting their business models to be relevant in today’s omni-channel retail world. Now, those retailers are reaping the rewards of those changes, and their stocks are bouncing higher.
A lot higher.
For example, department store Macy’s Inc (NYSE:M) stock rose 18% last quarter.
And that big rise isn’t good enough to put it on my list of the top three malls stocks in Q1.
Even more surprised? Don’t be. Read on to see which three mall stocks rose more than 20% in the first quarter of 2018.
Best Performing Mall Stocks: Abercrombie & Fitch Co. (ANF)
The mall’s biggest winner in the first quarter of 2018 was teen retailer Abercrombie & Fitch Co. (NYSE:ANF). ANF stock rose nearly 40% in Q1 as comparable sales trends continued to improve, gross margins continued to move higher, and earnings growth prospects continued to get better.
This big move needs to be put in context.
ANF was one of the mall’s biggest losers over the past several years. And with good reason. Not only was ANF a victim of secular changes in shopping habits, but the company also found itself on the wrong side of the branding tracks. There were controversial comments made about how ANF’s clothes were only for attractive people. There was also a big movement away from specific branding on clothes, a big headwind for ANF, which pushed their logo on every item of clothing.
But ANF has come a long ways since then. Most of their clothes don’t have or hide away that big ANF logo. Consumers have also forgot about the “attractive people only” thing. Plus, ANF built out its digital business to be relevant in today’s world.
The numbers show this. Comparable sales rose 9% in the holiday 2017 quarter, while operating income more than doubled.
With both its Abercrombie and Hollister brands surging right now, margins on the rebound, and all of retail in comeback mode, there is reason to believe that the rally in ANF stock isn’t over just yet.
Best Performing Mall Stocks: Crocs, Inc. (CROX)
The mall’s second biggest winner in the first quarter of 2018 was often neglected Crocs, Inc. (NASDAQ:CROX).
To most people, CROX’s day in the sun has come and gone. But CROX stock finished the first quarter up nearly 30%. More than that, CROX stock has nearly tripled over the past year. And it has gone from the under-$10 mark to holding and sustaining levels above $10.
What is driving the huge turnaround in CROX stock? Naturally, a huge turnaround in the operating results.
This all started back in May 2017. Back then, CROX reported better than expected Q1 numbers that checked off the two main boxes for a retailer in rebound mode. Firstly, revenue declines moderated, showing signs of revenue stabilization in the near future. Secondly, gross margins dramatically improved, showing signs that gross margins had finally hit rock-bottom and were ready to head higher.
This trend continued in Q2 and Q3. Then, in Q4 (the all-important holiday quarter), CROX’s revenue growth actually inflected into positive territory. And not small positive territory. Constant currency revenue growth was nearly 4% in the quarter.
Next year, management is guiding for revenues to be flat year-over-year, but for gross margins to continue to ramp back up, operating expenses to fall sharply and operating profits to nearly triple year-over-year.
All together, this is a big a turnaround story. And the stock performance over the past year and in Q1 reflects that big turnaround.
Best Performing Mall Stocks: Dicks Sporting Goods Inc (DKS)
The mall’s third-biggest winner in the first quarter of 2018 was sporting goods retailer Dicks Sporting Goods Inc (NYSE:DKS). DKS stock stormed 22% higher in Q1, largely thanks to improving sentiment and stable operational results.
For all intents and purposes, it looks like DKS stock bottomed in October 2017 and has been on a steady grind higher ever since.
A few years back, sports retailers left and right were declaring bankruptcy. DKS was expected to be a big winner of those bankruptcies, as shoppers would migrate to DKS. For about a year, that happened. But then that tailwind disappeared over the past 12 months.
Comparable sales growth came crashing down as Amazon morphed into a bigger threat than most initially anticipated. Also, brands like Nike Inc (NYSE:NKE) were starting to push direct over wholesale, a move that hurt sports retailer like DKS.
Consequently, DKS stock fell from a high of $60 in late 2016 to a low of $25 in late 2017.
But the rebound has started. At $25, DKS was just too cheap for investors to ignore. The only way the valuation made sense is if things kept getting worse for DKS. But they haven’t. Things have actually improved.
The sharp rise in the DKS stock price in Q1 reflects these improvements. How much higher DKS stock goes from here depends on how much market share the company can preserve while also maintaining margins. If the company can grow sales and maintain current margin levels, then this stock is still far too cheap at under 12-times this year’s earnings estimate.
As of this writing, Luke Lango was long DKS.