As the retail industry continues its digital transformation, few retail stocks have been able to keep pace with the changing times. Stitch Fix (NASDAQ:SFIX) is one of them, which is why SFIX stock is one of five retail stocks that investors should hold for the next decade.
Every investor should own SFIX stock or one of those other four names. Here’s why.
Stitch Fix’s Fixation on Data Is Good for SFIX Stock
Of all the companies on my list, Stitch Fix is the youngest, not to mention the smallest, with trailing 12-month revenue of $1.5 billion and a market cap of just $2.1 billion. It’s got a lot of growing to do before it can go toe-to-toe with my other four retail picks.
However, what it lacks in size, it more than makes up for in innovation. Stitch Fix was recently profiled by Wired, a magazine dedicated to technology innovation.
“At Stitch Fix, the online personal styling service, finding the right thing to wear is as much about fashion as it is about data. The company has hired over 100 data scientists to build a robust set of algorithms that determine everything from the size, silhouette, and style of each item that shows up on a client’s doorstep,” stated Wired contributor Arielle Pardes.
And that is what makes SFIX stock so unique.
If using artificial intelligence to pick the best clothes for everyone was as easy as hooking IBM’s (NYSE:IBM) AI system, Watson, up to a large retail company, IBM would have done so a long time ago.
But Stitch Fix is also working with more than 3,000 human stylists to make sure the personal touch isn’t neglected. As good as machine learning and artificial intelligence have become at taking data and running with it, Stitch Fix founder and CEO Katrina Lake understood that online clothes shopping would only truly succeed if there was someone behind the curtain narrowing the choices.
“How can we marry the ease of shopping online with what people want in clothes, which is really about fit and style?” Lake asked in a 2018 interview in Elle.
The human stylist may one day disappear, but that won’t happen before AI and machine learning evolve to the point where computers can think like a stylist and not just interpret data.
And the best part of Stitch Fix is that it already makes money, something Wayfair (NYSE:W) might never be able to say.
Lululemon’s Global Domination
When Lululemon (NASDAQ:LULU) opened its new 20,000-square-foot store in Chicago in July, its biggest store ever, it became clear to me that CEO Calvin McDonald was the right person to lead the company to global domination.
While retail stores are closing at a tremendous rate, McDonald is pushing LULU to be bigger and bolder.
“The brand and community based model underpins a return on capital structure that is higher than any business in North American retail,” wrote Cowen analyst John Kernan after visiting LULU’s Chicago store. “The level of detail in the store design and overall energy inside the store/cafe/studios was impressive and further enhances Lululemon’s community-based model and ecosystem,” the analyst added.
Three years ago, I said that if Lululemon could make inroads among men, it would be one of the 50 best-performing stocks of the next 10 years.
In LULU’s second quarter, sales of its men’s products grew by a whopping 35%, the company reported earlier this month. Its men’s business could someday become more significant than its women’s business.
If that happens, who knows how high LULU stock can go?
LVMH Is a Cut Above
The third retail stock that investors should buy for the next decade is LVMH (OTCMKTS:LVMUY). The Paris-based conglomerate has more than 75 brands, including Louis Vuitton and Moet Hennessy, the brands behind its LVMH acronym.
While it’s easy to get nervous about luxury brands when a global recession lurks just around the corner, LVMH is so large that it’s too big to fail.
In fiscal 2018, LVMH’s overall revenue grew by 11%, excluding acquisitions, to 46.8 billion euros. LULU’s Watches and Jewelry segment (its smallest in terms of revenue) had FY18 sales of 4.1 billion euros, 12% higher than a year earlier.
On its own, the Watches and Jewelry segment could be a large-cap stock.
While we tend to think of LVMH as a French business because it’s headquartered in Paris, the reality is that it generates 70% of its revenue outside of Europe, with Asia (36%) and the U.S. (24%) contributing big chunks of its total top line.
And boy, is it profitable.
Over the past two years, it’s grown its net profit and free cash flow by 57% and 39%, respectively. The fantastic thing is it generated free cash flow of 5.45 billion euros in 2018, which is 11.6% of its revenue and 78% of its net income.
While these are impressive numbers, I believe it could become even more efficient.
LVMH will get hurt by a recession. However, with long-term debt of just 6 billion euros, or 3.2% of its market cap, it has the financial strength to endure almost any recession.
Costco is a good stock to buy and hold because of its business model, while Amazon is a good stock to buy and hold because of Jeff Bezos.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.