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7 Retail Stocks to Buy for Winning the Online Battle

retail stocks to buy - 7 Retail Stocks to Buy for Winning the Online Battle

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If you’re looking for retail stocks to buy that are winning online, Children’s Place (NASDAQ:PLCE) ought to be at the top of your list. However, before you rush to your computer to place your buy, it’s important to understand the retailer’s e-commerce success has come at a short-term cost.

On Dec. 6, it announced its third-quarter results. Among the usual numbers in its press release was a 38% increase in digital sales along with a 9.5% increase in same-store sales.   

That was the good news. The bad news was that its costs were higher in the quarter due to the extra expense of fulfilling online orders from its stores rather than its distribution center.

“[T]he outsized growth of our digital business has caused low levels and stock-outs of e-commerce inventory, and has forced us to make brick-and-mortar inventory available to our digital customers online in order to meet their demand,” said Chief Financial Officer Michael Scarpa on its earnings conference call. “The fulfillment costs associated with ship-from-store and the fulfillment of store inventory carries a higher cost per unit than shipments made via our distribution center.”

As a result, it lowered its adjusted earnings per share for the fiscal year from $8.19 at the midpoint of its previous guidance to $7.74 a share. Investors didn’t like the news, sending PLCE stock down more than 13%.

Avoid the noise.

Children’s Place is taking market share as a result of recent bankruptcies. Long-term, this is a retail stock winning the online battle. Here are seven more. 

Williams-Sonoma (WSM)

Retail Stocks to Buy: Williams-Sonoma (WSM)

If there’s a brick-and-mortar retailer that rivals Amazon’s ability to sell online, it’s Williams-Sonoma (NYSE:WSM), one of the first of the big retailers to get omnichannel right.

Here’s what I said about WSM in 2016:

Whether you live in the U.S., UK, Asia or elsewhere, it’s impossible to avoid the discussion of omnichannel retail. It’s hypercritical if media is to be believed and unfortunately, there aren’t many retailers able to walk the tightrope that is omnichannel retail.

“Williams-Sonoma just happens to be one of the outliers.”

At the time, Williams-Sonoma was generating 52.5% of its revenue online; in its latest quarter ended Oct. 29, e-commerce revenues accounted for 55% of its $1.36 billion in total revenue.

On the brick-and-mortar side of its business, West Elm continues to carry most of the burden, with same-store sales increasing by 8.3% — which is good news — but down by 320 basis points from a year earlier.

Like all businesses, there are parts of Williams-Sonoma that aren’t performing nearly as well as they could be; online’s not one of them. And that’s good news for shareholders.

Urban Outfitters (URBN)

Retail Stocks to Buy: Urban Outfitters (URBN)
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Urban Outfitters (NASDAQ:URBN) had an up-and-down 2018 in the markets, hitting a high of $52.50 in August only to give it all back over the next three-and-a-half months. It’s now down a couple of dollars on the year.

It’s hard to understand why URBN stock is off so much.

In mid-November, it announced Q3 2018 earnings that were good, with top-line revenues of $974 million, six million higher than analyst expectations; on the bottom line, earnings were 70 cents a share, eight cents better than the consensus estimate.

On the digital front, the company grew its digital sales by double digits in the quarter. While the company doesn’t break out its retail sales, eMarketer estimates that its online sales account for 37.9% of its total revenue, making it one of the bigger players in online fashion retail.

If it keeps growing digital by double digits each quarter, you can expect it to hit 50% of sales sometime in the next five-10 years.

Nordstrom (JWN)

Retail Stocks to Buy: Nordstrom (JWN)
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It has been a terrible year for retail stocks — the SPDR S&P Retail ETF (NYSEARCA:XRT) is down 6% over the past year — but Nordstrom (NYSE:JWN) has managed to buck the trend and is roughly even despite a heavy market selloff around the new year.

These gains haven’t come without a fair share of pain. On two occasions in 2018, JWN stock got close to $70 a share, only to retreat into the $50’s and $40’s, where it’s currently trading.

If you were market timing your buys of Nordstrom stock, you likely got burned.

It didn’t help that the company was forced to take a $72 million charge in the third quarter to repay customers who were charged too much interest on their store credit cards. Trust is a big deal when it comes to credit cards. Nordstrom broke that trust and its stock paid the price, dropping by more than 20% in mid-November on the news.

Overall, its business is doing just fine.

Same-store sales for fiscal 2018 are expected to increase by 2%, with its online business generating approximately 30% of its $15.5 billion in annual revenue. In the third quarter, its online sales grew by 16.5% to $949 million.

Investors can expect Nordstrom to hit $5 billion in annual online revenue by the end of fiscal 2020, maybe sooner.

Macy’s (M)

Retail Stocks to Buy: Macy’s (M)
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Online retail news site Retail Dive recently named Macy’s (NYSE:M) CEO Jeff Gennette its Executive of the Year.

Early into Genette’s promotion to CEO, after taking over for long-time Macy’s boss Terry Lundgren, Genette promoted Yasir Anwar to the position of chief technology officer, where he would be responsible for delivering a better online experience. Although Anwar left not too long after his promotion, his work is reflected in Macy’s online sales, which increased by double digits in the third quarter.

While Macy’s doesn’t break out its online revenues, eMarketer estimates they were 23.5% of sales in 2017.

Like most retailers, M stock is down quite a bit from its summer high, but long-term, Genette’s doing the things that need to be done to keep it relevant with shoppers, in-store and online.   

Lululemon (LULU)

Retail Stocks to Buy: Lululemon (LULU)
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Former Lululemon (NASDAQ:LULU) CEO Laurent Potdevin set the popular apparel brand on a crash course with growth in 2016, suggesting it would hit $4 billion in annual revenue by 2020.

The $4 billion goal included $1 billion in annual revenue outside the U.S. and Canada, $1 billion in revenue for men’s clothing, and $1 billion from online sales.

His successor, Calvin McDonald, has taken that goal and run with it. McDonald expects LULU to generate $3.25 billion in fiscal 2018, about $750 million short of its goal with two years left to reach it.

On the e-commerce front in the third quarter ended Oct, 28, 2018, its direct-to-consumer revenue increased 46% on a constant-currency over last year and now accounts for 25.3% of revenue, up 410 basis points from a year earlier.

Based on the company’s full-year revenue estimate, Lululemon should generate online sales in fiscal 2018 of at least $822 million, likely more, well within reach of its $1 billion-goal by 2020.

Investors didn’t like the company’s Q4 2018 outlook for same-store sales, projecting a high-single-digit or low-double-digit gain in the quarter.

The one thing I’ve learned about LULU over the years is it tends to underpromise and overdeliver. Global domination is still in the cards.

Kohl’s (KSS)

Retail Stocks to Buy: Kohl’s (KSS)

One of the most exciting ideas from Kohl’s (NYSE:KSS) CEO Michelle Gass — whose company I recently suggested was one of seven women-led businesses to own — is the partnership it has with Amazon that allows the online retailer’s customers to return items at 100 Kohl’s locations in several cities.

Some might see this as sleeping with the enemy, but Gass sees it more along the lines of keeping your friends close and your enemies closer.

Seriously, though, while returns are a pain in the behind, the foot traffic these returns generate in the stores is worth the aggravation. “We’re really pleased with the pilot. We’re driving a great level of customer engagement, customers love it,” Gass stated recently. “This [Holiday season] will be important for us because clearly, it’s a big time when people have a lot of packages to return.”

As far as e-commerce goes, Kohl’s is working hard to improve the digital experience by making online purchases, especially those on smartphones, which account for 70% of Kohl’s online traffic and about 50% of its online sales.

Although the company doesn’t break out online sales, Gass did say during its Q3 2018 conference call that they grew in the mid-teens over last year. Further, eMarketer estimates that online sales accounted for 15.3% of its Q2 2018 revenue but will likely rise into the 20% range during the fourth quarter, every retailer’s busiest time of the year.

I’d continue to watch how its Amazon partnership progresses.

Tapestry (TPR)

Retail Stocks to Buy: Tapestry (TPR)
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With the 2017 acquisition of Kate Spade for $2.4 billion by Coach, the transformation to Tapestry (NYSE:TPR) had begun.

CEO Victor Luis is in the process of growing the company into the next LVMH (OTCMKTS:LVMUY), or at least a North American version, with multiple higher-end brands capturing a more significant share of the global apparel and footwear market.

Investors can expect further acquisitions.

When Coach bought Kate Spade, the brand wasn’t doing very well, using online flash sales to sell products that luxury buyers weren’t interested in owning. Sales imploded.

Now, Tapestry is fixing Kate Spade, so it can continue to grow organically, and via M&A deals. Luis originally expected to find $35 million in annual savings from the brand; in 2019, it plans to deliver as much as $115 million in savings, a feat that many acquisitions fail to do: meet and exceed internal targets.

Kate Spade’s most recent e-commerce sales in 2017 accounted for about 25% of its revenue. Coach’s were about 7% of sales. As Tapestry — it doesn’t break the numbers down — the company’s online sales are probably low single digits but growing.

If there’s a dark horse in this group when it comes to online retail, Tapestry is it.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2019/01/7-retail-stocks-to-buy-for-winning-the-online-battle/.

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