The bad news from this year’s Black Friday sales is that foot traffic was down 52% over last year. The good news for retailers with solid e-commerce programs is that online sales hit $9 billion on the day after Thanksgiving, while Cyber Monday sales hit $10.8 billion, up more than 15% from last year.
If you’re betting on online retail stocks, the obvious choice is to buy Amazon (NASDAQ:AMZN) and call it a day.
However, for those who have a penchant for the less obvious, I’m going to provide you with a list of seven stocks that are doing okay in 2020 and generate significant sales from online customers.
To be even more adventurous, I’ll try to select seven stocks in seven different areas of retail.
So, for example, if I were selecting a department store — I wouldn’t be — I won’t pick both Macy’s (NYSE:M) and Nordstrom (NYSE:JWN); I’d only go with one of them. The same goes for other areas of retail.
By the end, I believe you will have a portfolio of online retail stocks that are diversified not only by category but also by geography, market capitalization, etc.
- Williams-Sonoma (NYSE:WSM)
- Target (NYSE:TGT)
- Home Depot (NYSE:HD)
- Best Buy (NYSE:BBY)
- Lululemon Athletica (NASDAQ:LULU)
- YETI Holdings (NASDAQ:YETI)
- MercadoLibre (NASDAQ:MELI)
And look … no Amazon.
Online Retail Stocks: Williams-Sonoma (WSM)
Not too long ago, in mid-November, I suggested that Williams-Sonoma was one of seven retail stocks that I expected to benefit from 2020’s holiday shopping season.
Well, I’m back to say WSM stock is also one of the seven online retail stocks to benefit from subdued foot traffic this holiday. How can that be, you might wonder?
It’s got a business that’s ideally balanced between online and brick-and-mortar sales. In the second quarter, it generated 76% of its sales online; in Q3, due to the novel coronavirus constraints, its online sales accounted for 70% of its total revenue — while growing by almost 50% over last year– and that’s during a pandemic.
More importantly, its Q3 profits were through the roof — up 151% to $2.56 a share thanks to significantly higher margins — and that was only through Nov. 1. It doesn’t include Black Friday and Cyber Monday.
“We sit in a very good place right now with a very sophisticated platform that can take a lot more volume than what we are putting through,” said chief executive officer Laura Alber in November after reporting its Q3 2020 sales.
Good times or bad times, WSM is a must-own.
Retail-Discount & Variety
Minneapolis-based Target reported stellar earnings on Nov. 13 that included a 155% increase in third-quarter digital same-store sales. Customers were taking advantage of the discount retailer’s same-day services to get stuff fast. Approximately 95% of its sales were handled through its stores. People were doing curbside, shipped to their door, and regular pick-up at the store.
“It’s clear that Target is not only gaining new customers but also retaining them, which will be critical as we move into 2021,” wrote Gordon Haskett analyst Chuck Grom in a note to clients.
The company’s been able to get people into the stores while also ensuring that those who don’t feel safe with in-store shopping will get their online orders delivered quickly, long before Christmas.
“The investments we’ve made in safety and our team are being recognized, and they’re rewarding us even during the pandemic with more and more trips to our stores,” said Target CEO Brian Cornell, in a call with the media. CEO Cornell is easily one of the best executives in retail.
In the three months ended Oct. 31, Target’s digital sales accounted for 15.7% of its overall revenue. That’s up from 7.5% a year earlier. If the pace keeps up through the holidays, the company’s online sales could hit 20% overall, a sign it’s become a player in the digital game.
TGT stock is up more than 17% in the past three months, compared to the 6.9% gain seen in exchange-traded fund Consumer Discretionary Select Sector SPDR Fund (NYSEArca:XLY), which has Target stock as its seventh-largest holding (3.37%) of the portfolio’s 62 stocks.
Home Depot (HD)
Home Depot announced in mid-November that it’s buying back HD Supply Holdings (NASDAQ:HDS) for $8 billion, the national distributor of maintenance, repair and operations (MRO) products that it owned until 2007.
Home Depot sold it to three private equity firms for $8.5 billion. The trio turned around and took it public in June 2013 at $18 a share. Home Depot’s paying $56 per share, albeit on a smaller number of shares outstanding from its IPO.
The MRO market is estimated to be a $55-billion marketplace that’s highly fragmented. Home Depot gets a nice growth vehicle and HD Supply gets a business behind it with $18 billion in annual free cash flow.
As for online sales, the company’s digital sales grew by about 100% in the second quarter ended Aug. 2. In the third quarter ended Nov. 1, digital sales grew by 80% over last year with 60% of the orders picked up by customers.
Traditional key metrics were up substantially — sales per square foot rose 23% to $552.85 while U.S. same-store sales grew 24.6% — suggesting that the business is operating in a very efficient manner despite being in the middle of a pandemic.
One of these days, Home Depot will start breaking out its online sales as a percentage of overall revenues. When it does, you’ll be surprised how high they are. HD stock is down 2.94% in the last three months.
Best Buy (BBY)
While some pundits might assume that because Amazon’s market share over Black Friday and Thanksgiving rose from 51.5% to 55.7%, retailers such as Best Buy and Target were the losers in 2020. That’s not accurate, in my opinion.
I would bet dollars to donuts that a big part of Amazon’s big gain had everything to do with the fact most retailers were closed on Thanksgiving Day, resulting in a 95% decrease in foot traffic.
And, of course, there’s the reality that Best Buy’s business was humming heading into the holidays.
Best Buy reported Q3 2021 results on Nov. 24. Its domestic online revenue for the quarter ended Nov. 2 was $3.8 billion. That was up 173.7% over last year. As a result of the big gains, its domestic online revenue accounted for 35.2% of its total domestic revenue, up from 15.6%.
“From a profitability standpoint, our better-than-expected sales resulted in significant operating income rate expansion and earnings growth,” stated Best Buy CEO Corie Barry.
While BBY stock is down 3.37% in the past three months, I can most assuredly guarantee you that Best Buy will be one of the better retail performances when the dust settles on holiday shopping and a lot of those revenues will be from its robust, online business.
Lululemon Athletica (LULU)
If you are going to buy something for that special someone this holiday, and you’re thinking about clothing, you can never go wrong with anything from Lululemon.
As a result of its focus on quality, this athleisure superstar is one of the premium-priced apparel products that’s managed to thrive during the pandemic.
Morgan Stanley recently released its top 40 stock picks for the long-term. LULU stock was one of the names on the list.
“Canada’s own Lululemon Athletica Inc. is also listed as a secular growth stock,” reported The Globe and Mail’s Scott Barlow on Dec. 3.
Morgan Stanley analyst Kimberly Greenberger expects non-North American sales will increase by 30% annually in the next three years, helping boost e-commerce sales by 20% per year. Expansion into men’s apparel and accessories is also expected to drive profits.
How profitable is LULU?
In the Q2 ended Aug. 2, its direct-to-consumer revenues grew by 155% to $554.3 million, accounting for 61.4% of its overall sales. Unfortunately, when you can’t open your stores, sales do fall when it comes to brick-and-mortar. They fell by 51% during the quarter to $287.2 million.
And yet, it still made $135.9 million in adjusted operating profits during the quarter, only 19% lower than last year.
At the end of 2019, I argued that there was a good chance Lululemon would become the next Nike (NYSE:NKE). Nothing about the latest quarter suggests it won’t happen.
Expect big things from LULU stock in 2021 and beyond.
Yeti Holdings (YETI)
Leisure & Recreation Products
I thought about going with Dick’s Sporting Goods (NYSE:DKS) because it doubled down on this year’s Black Friday event. However, despite having similar market caps, I believe that Yeti Holdings provides a more interesting investment.
If you don’t know Yeti, they design and sell coolers, water bottles, backpacks, and lots of other interesting outdoor products direct-to-consumer (DTC) from its website and at its retail stores, along with wholesale accounts around the world.
In its latest quarter ended Sept. 26, DTC sales accounted for 51% of its revenue. That was 62% higher than a year earlier. Its drinkware segment accounted for 56% of its overall revenue. It continues to grow at a decent clip, up 31% over last year.
The company has a small number of retail stores, but it is e-commerce driving sales in 2020. It doesn’t break out the numbers, but I’m confident the fourth quarter will show significant growth from its DTC segment.
As for profitability, its adjusted net income grew by 130% to $53.5 million or 18.2% of sales. That’s 810 basis points better than Q3 2019.
Last October, I recommended YETI stock, suggesting there were plenty of reasons to buy YETI stock. In the year since, it’s almost doubled in price. If it keeps up the online growth in 2021, I wouldn’t be surprised if it did it again.
Heading down to South America for my final online retail stock. MercadoLibre shares a lot of similarities with Alibaba (NYSE:BABA). It’s a big reason why I first started recommending MELI stock in 2017, long before it became the Latin American powerhouse it is now.
The Financial Times recently published a piece about how it became an e-commerce titan. A couple of comments really stand out. The first has to do with its rise from nothing.
“Captured on camera at a New Year’s Eve party at the turn of the millennium, Marcos Galperín confidently declared that the dotcom start-up he had co-founded just five months earlier would become the biggest company in Latin America,” FT contributors Benedict Mander and Michael Stott wrote on Nov. 23.
“Almost 21 years later, he has been proved right. MercadoLibre, Latin America’s answer to China’s Alibaba, is now worth $63 billion on Nasdaq, more than doubling its value over the past year…”
Since I first recommended MELI in May 2017, it’s up almost 500%. It’s the belle of the ball in Latin America. But for a good reason.
Interestingly, despite the CEO being right about his prediction, he says he would have hired a bigger and better technology team if he had to do it all over again because “‘that is what determines the pace of execution [and] progress.”
As the FT article pointed, MercadoLibre has approximately 28% market share in Latin America’s e-commerce market. While Amazon’s doubled its share to 4% over the past five years, MELI ought to have another five years of clear sailing before Jeff Bezos gets interested in the market.
Until Bezos makes a bigger play, MELI stock is the one to own down there.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.