The second-quarter earnings season is almost behind us, and it has been a whopper with approximately 80% of the S&P 500 beating analyst estimates. More impressive is the fact the average earnings surprise of 25% is the highest level since 2010.
Nowhere are the results more noticeable than in the retail industry where a majority of companies have blasted through estimates suggesting the death of retail chants emanating from the business media in 2017 were way too premature.
“In my opinion, the roughly 64,000 retail job cuts announced through the first seven months of 2017 have little to do with Amazon’s dominance and more to do with the fact retailers opened too many brick-and-mortar stores in terrible locations in malls where Sears Holdings Corp (NASDAQ:SHLD) and other poor operators are located, giving consumers plenty of reasons to stay away.”
Retailers are working feverishly to give consumers a better shopping experience, with the economy and jobs market as it has been since the mid-2000s, people are spending, and that’s got cash registers ringing off the hook.
So, with Q2 2008 pretty much in the books, which are the retail stocks to buy? Here are the seven I’d be looking to invest in.
Retail Stocks to Buy: Five Below (FIVE)
Five Below (NASDAQ:FIVE) doesn’t report its second-quarter results until Sept. 6, after the markets close.
The current earnings estimate is $0.38, which is 26.7% higher than last year. Over the past four quarters, it has beaten estimates all four times by an average of 16.3%.
If you follow my InvestorPlace articles, you’ll know that I’m a big fan of the discount retailer, which sells everything under $5.
Although it’s going to increasingly difficult to keep the sale price under five dollars as its costs increase, dollar stores such as Dollarama (OTCMKTS:DLMAF) in Canada have been able to move beyond the $1 sales price without too much resistance from consumers.
Besides, I like the fact that it caters to the teen and pre-teen markets (it does sell to adults as well) and it has lots of expansion possibilities in California and other western states.
For me, FIVE is one of the best stocks to own for the next decade.
Retail Stocks to Buy: Lululemon (LULU)
Lululemon (NASDAQ:LULU) doesn’t report its second-quarter results until Aug. 30, after the markets close.
The current earnings estimate is $0.49, which is 25.6% higher than last year. Over the past four quarters, it has beaten estimates all four times by an average of 10.9%.
This will be the first quarterly report from new CEO Calvin McDonald who was hired away from Sephora North America. McDonald’s first official day at the athleisure brand was Aug. 20.
I’m confident that chairman Glenn Murphy, himself a former CEO of Gap (NYSE:GPS), and the rest of the board have made a strong hire in McDonald. I said as much in June at the time of his hiring announcement.
“I think this is an inspired choice for three reasons:
1. McDonald understands what customer service is all about.
2. He’s not going to add fuel to the HR fire at Lululemon HQ.
3. He’s Canadian.”
I can’t say that LULU stock hasn’t come a long way over the past 52 weeks — it’s up 129% over this period — nor that it’s particularly cheap trading at 37 times cash flow, but I can say that over the next three to five years you will make money under Calvin McDonald’s leadership.
Retail Stocks to Buy: Nordstrom (JWN)
Nordstrom (NYSE:JWN) reported its second-quarter results on Aug. 16.
The department store had Q2 2018 earnings of $0.95, which were 46.2% higher than last year and 13.1% higher than the consensus estimate of $0.84-a-share. That’s its eighth earnings beat out of the last nine quarters and its fourth-consecutive sales surprise, delivering a 4% comp versus less than 1% expected by analysts.
Frankly, the best thing that’s happened to Nordstrom stock in the past year, besides being up 36% over 52 weeks, is the Nordstrom special committee ending go-private discussions with the family in March.
That got the entire Nordstrom family back focusing on the business; results are strong, and that’s reflecting well on JWN stock.
With its online business growing at a 20% quarterly clip and accounting for 34% of its overall sales, 500 basis points higher than a year earlier, Nordstrom has become a player in the omnichannel shopping experience.
Going forward, Nordstrom has plenty of stuff going on to keep Amazon at bay. It’s definitely one of the better retail stocks to buy.
Retail Stocks to Buy: Tapestry (TPR)
Tapestry (NYSE:TPR) reported its fourth-quarter results Aug. 14.
The retail conglomerate had Q4 2018 adjusted earnings of $0.60, which were 20.0% higher than last year and 5.3% higher than the consensus estimate of $0.57-a-share.
Although the retailer’s final quarter of 2018 was a mixed bag, overall, the trend is heading in the right direction.
Kate Spade gained a bit of a spark in June as fans of the late designer stepped up to buy some of the brands’ products, and that meant Kate Spade’s Q4 same-store sales declined by 3%, far less than the analyst consensus of 7.1%.
“In our view, the brand is now in a better position and should start making a solid top and bottom line contribution over the next fiscal year,” said Neil Saunders, managing director of GlobalData Retail, in a written statement.
Tapestry paid a lot ($2.4 billion) for the Kate Spade brand. As it goes, so goes TPR stock.
While it’s still early in the Kate Spade transformation, in three to five years, TPR could turn out to be the biggest surprise of all seven of these retail stocks to buy, but it doesn’t happen without a strong performance from Kate Spade.
Retail Stocks to Buy: Tiffany (TIF)
Tiffany (NYSE:TIF) reported its second-quarter results Aug. 28.
Except for a 4% same-store sales decline in Europe, TIF experienced strong results across the rest of its operating regions. As a result of a strong second quarter, Tiffany raised its full-year guidance by 15 cents at the low-end to $4.65-a-share with high single-digit revenue growth.
Since this past year’s holiday shopping season, Tiffany’s results have been on fire, and that’s reflected in a higher stock price. Since Black Friday 2017, TIF stock is up 38% versus 12% for the S&P 500.
Last May, I suggested that Tiffany stock would go much higher because the wealthy would continue to spend some of their stock market gains in the retailer’s stores.
At the time it was trading around $93, but I felt it had the stuff to go over $100 and stay there, which it did. Barring an economic calamity or some unexpected world event that rocks the markets, Tiffany’s latest results suggest its business is doing better than it has in some time.
As long as Tiffany stays true to its past while keeping pace with future trends, TIF stock will be a great long-term hold.
Retail Stocks to Buy: Ralph Lauren (RL)
Ralph Lauren (NYSE:RL) reported its second-quarter results July 31.
The iconic retail brand had Q2 2018 earnings of $1.54, which were 36.0% higher than last year and 13.2% higher than the consensus estimate of $1.36-a-share.
Did you ever really think you could count out Ralph Lauren, the dean of American apparel designers? Not a chance.
At 78 years of age, Lauren is still very much involved in the running of his apparel empire, which has taken it on the chin in recent years.
Up 32% year-to-date through Aug. 27, and 59% over the past 52 weeks, RL is trading where it did 36 months ago.
In June, the company laid out for investors its revised plan for the future, based on the original plan Lauren created in 2016.
Essentially, Ralph Lauren was focused on delivering higher profits from better revenue, not necessarily more revenue. Ultimately it wants to grow the top line but if you’re an investor today, the 120 basis point increase in its Q2 2018 gross margin, is the kind of number you want to see moving higher, mostly as a result of fewer promotional sales.
Is Ralph Lauren all the way back?
No, it’s not, but business is looking a lot stronger, and that should have long-time investors like Lauren very excited about the future.
Retail Stocks to Buy: Urban Outfitters (URBN)
Urban Outfitters (NASDAQ:URBN) reported its second-quarter results Aug. 21.
The company had Q2 2018 earnings of $0.84, which were 90.9% higher than last year and 10.5% higher than the consensus estimate of $0.76-a-share.
Investors had mixed feelings about URBN stock after earnings because even though it delivered 13% same-store sales growth across its three main brands: Urban Outfitters, Anthropologie and Free People, it’s up against some tough comps in the third quarter.
That said, business is starting to come to Urban Outfitters, and that’s always a good thing when it comes to finicky customers.
“The combination of a strengthening fashion cycle and a very healthy consumer backdrop are driving outsized strength in Urban Outfitters‘ fundamentals, a trend which we expect to continue over the medium term,” stated Jefferies & Co. analysts before its Aug. 21 earnings release.
What’s exciting to me about Urban Outfitters is the growth it’s experiencing in its online business which continues to outpace brick-and-mortar. In France, for example, Urban Outfitter’s online sales are growing by 60% year-over-year, creating a long runway for growth.
Except for Lululemon, Urban Outfitters is probably my favorite apparel retailer stock to own at the moment.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.