Top 10 Retail Stocks To Invest In Right Now

Can U.S. department stores Amazon-proof their stores?

Reuters

Thats the question Cowen analyst Oliver Chen asked today as a wild week of ugly earnings reports from big retail chains raised questions about consumer spending.

But the issues facing retailers are far more nuanced than whether shoppers are opening their wallets.

U.S. retail sales beat expectations, rising 1.3% in April. It marked the best gain in a year, led by auto dealers, gas stations and online merchants. Most other retail categories posted more modest gains in April, with clothing stores sales rising just 1% in April. Analysts argue that off-price retailers have been capturing a bigger chunk of those sales.

Department-store spending rose 0.3% in April, but the category was down from a year earlier.

As Chen writes:

No, Bricks & Clicks Will Prevail Over Long-Term, But Transformation & Timing Not Relaxing. Main question: How quickly can dept. stores transform their biz models to appeal to new 30-something who cares less about apparel, is always on mobile, & likely perceives health as new wealth. Share shifts: off-px from full-px, beauty from apparel, mobile from bricks.

Top 10 Retail Stocks To Invest In Right Now: Lowe’s Companies Inc.(LOW)

Lowe’s Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. The company offers a range of products for maintenance, repair, remodeling, home decorating, and property maintenance. It provides home improvement products in the categories of appliances, lumber, paint, millwork, building materials, lawn and landscape products, flooring, rough plumbing, seasonal living, tools, hardware, fashion plumbing, lighting, nursery, outdoor power equipment, cabinets and countertops, home organization, rough electrical, and home fashion, as well as boards, panel products, irrigation pipes, vinyl sidings, and ladders. The company also offers installation services through independent contractors in various product categories. Lowe’s Companies serves homeowners and renters primarily consisting of do-it-yourself customers and do-it-for-me customers; and commercial business customers, who work in the construction, rep air/remodel, commercial and residential property management, or business maintenance professions. As of August 15, 2011, it operated approximately 1,725 home improvement stores in the United States, Canada, and Mexico. The company also offers its products through electronic product catalogs and Lowes.com. Lowe’s Companies, Inc. was founded in 1952 and is based in Mooresville, North Carolina.

Advisors’ Opinion:

  • [By Ben Levisohn]

    Credit Suisse analystSeth Sigman and team see slowing growth for Home Depot (HD) and Lowe’s (LOW) when they release their earnings but also believe that should remain a bright spot in retail:

  • [By Ben Levisohn]

    Oppenheimer’s Brian Nagel and team argue that the weather, not “less than stringent operational controls” were to blame for Lowe’s (LOW) second-quarter earnings disappointment:

  • [By Ben Levisohn]

    We observed an earnings beat from Urban Outfitters (URBN), Target’s (TGT) lowered guidance, and Lowe’s (LOW) big earnings miss.

    We highlighted Noble’s (NE) latest fleet-status report, Ed Yardeni’s optimism about and fear for the Bull market, the sacking of the CEO of Barnes & Noble (BKS), and Morgan Stanley’s upgrade ofValeant Pharmaceuticals International (VRX).

  • [By Ben Levisohn]

    Shares of Lowe’s (LOW) are up more than 3% following its better-than-forecast earnings today–and some of its numbers were even better than Home Depot’s (HD). Credit Suisse analysts Seth Sigman and Kieran McGrath explain:

    Matt Rourke/Associated Press

    Lowe’s delivered a significant top line beat (+7.5% US comps), along with a modest EPS beat ($0.02). It outperformedHome Depot (though its quarter may have captured a more favorable period see more on that below). EPS upside was limited by lower gross margin and less flow through. Guidance was left unchanged. Adding it all up, we think strong top line results and 24% EPS growth should be enough send the stock up today, serving as another reminder of the strength of this category andLowe’s opportunity…

    Lowe’s US comps of 7.5% came in well above our and the markets expectation, of 4-5% afterHome Depot yesterday. This is a very strong result, accelerating from +5.5% in Q4, both on a one- and two-year basis, and we give a lot of credit to the team for strong execution in the quarter. As noted above, limiting EPS upside was gross margin (-44 bps vs. expectations for up slightly), and lower flow through than expected (10 bps of EBIT expansion for every point of comps above 1%), particularly given thatLowe’s was no longer incurring costs to operate in Australia. However, we believe the company has discussed more of a back-end weighting to its margin expansion, due to mix and promotional cadence. This seems consistent.

    There will likely be some focus on the comps gap withHome Depot today, asLowe’s outperformed in the US (well ahead of our expectations for the gap to remain wide at 250+ bps). One difference to note forLowe’s vs.Home Depot is the calendar;Lowe’s quarter captured the last weekend in January, but not the last weekend in April. We are not sure how meaningful that is, but given that April was the wea

Top 10 Retail Stocks To Invest In Right Now: Costco Wholesale Corporation(COST)

Costco Wholesale Corporation operates membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities. The company’s product categories include candy, snack foods, tobacco, alcoholic and non-alcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, office supplies, garden and patio, sporting goods, toys, seasonal items, and automotive supplies; dry and institutionally packaged foods; apparel, domestics, jewelry, house wares, media, home furnishings, cameras, and small appliances; meat, bakery, deli, and produce; and gas stations, pharmacy, food court, optical, one-hour photo, hearing aid, and travel. It also provides business and gold star (individual) membership services. As of April 26, 2011, the company operated 581 warehouses, including 425 in the United States and Puerto Rico, 80 in Canada, 22 in the Uni ted Kingdom, 7 in Korea, 6 in Taiwan, 8 in Japan, 1 in Australia, and 32 in Mexico. It also has Costco Online, an electronic commerce Web site, at costco.com in the United States and at costco.ca in Canada. The company was formerly known as Costco Companies, Inc. and changed its name to Costco Wholesale Corporation in August 1999. Costco Wholesale Corporation was founded in 1976 and is based in Issaquah, Washington.

Advisors’ Opinion:

  • [By Ben Levisohn]

    American Express reported monthly loss and delinquency numbers for March: Ending period loan balance for US Consumer Services and U.S. Small Business was $50.7Bn, representing 2% m/m growth from February and 12% y/y growth from last year’s balance (excluding U.S. Costco Wholesale (COST) and JetBlue Airways (JBLU)). The sale of JetBlue was completed on March 18, 2016.

  • [By Ben Levisohn]

    Guggenheim’s John Heinbockel and team explain why shares of Costco Wholesale (COST) are getting hammered today–and why they’re optimistic enough to start looking for “a compelling entry point”:

    Customers at Costco Wholesale Luke Sharrett/Bloomberg News

    Investors concerned about uncharacteristically choppy U.S. comps will not take much solace from March results. Ex-gas U.S. comps rose just 3%, below our 4% estimateCanada and international comps were also light, but strong in absolute terms…

    U.S. ex-gas comps rose 3%, below our 4% estimate. During the past four years, there have been just four months with sub-4% U.S. comps; two have occurred since January. What explains this? Fresh food deflation, especially in meat, is a factor. So are tough year-ago compares, with gains of 6-7% during this period. Lastly, we continue to believe that the company may be maxxing out traffic gains with its most loyal members. Importantly, as food inflation returns and compares ease, we expect U.S. comps to strengthen to 4-5%…

    We remain in search of a compelling entry point ahead of a re-acceleration in operating momentum in 2017; for the first time in several years, our estimate is above consensus$6.15 versus $6.07with none of these forecasts incorporating a likely membership fee increase…

    …our 2017 estimate sits above the current consensus, the first time that has been the case in some time…and there could be upside to this estimate. Our optimism is fueled by several factors, including 1) accelerating “core” U.S. comps, 2) a moderating Fx hit to both sales and EBIT, 3) improving product gross margin, driven by mix and modest competitive intensity, 4) increasing expense leverage as comps strengthen and IT cost growth slows, and 5) the presence of an extra week. Our model calls for a reasonable 8% “core” EBIT growth ratea hike in the membership fee could add

  • [By Javier Hasse]

    As stated above, the market strength led to net selling of some big companies, including Alibaba Group Holding Ltd (NYSE: BABA) and Intel Corporation (NASDAQ: INTC), which rebounded in July. Similar was the situation for Costco Wholesale Corporation (NASDAQ: COST), Sirius XM Holdings Inc. (NASDAQ: SIRI) and General Electric Company (NYSE: GE).

5 Best New Stocks For 2017: Kohl’s Corporation(KSS)

Kohl?s Corporation operates department stores in the United States. The company?s stores offer private and exclusive, as well as national branded apparel, footwear, and accessories for women, men, and children; soft home products, such as sheets and pillows; and housewares primarily to middle-income customers. As of January 29, 2011, it operated 1,089 stores in 49 states. The company also offers on-line shopping on its Web site at Kohls.com. Kohl?s Corporation was founded in 1962 and is headquartered in Menomonee Falls, Wisconsin.

Advisors’ Opinion:

  • [By Ben Levisohn]

    Shares of Kohl’s (KSS) are getting killed today after the retailer cut its full-year guidance as profit margins shrank. Citigroup’s Paul Lejuez and Tracy Kogan have the details:

    Gabe Hernandez/The Monitor/Associated Press

    Not unlike its department store peers, Kohl’s had a tough 4Q. Though comps were up slightly (+0.4%), it was below consensus of +1.7% (though inline with our flat forecast) and margins were significantly below plan as the company needed promotions to drive sales. As we indicated in our 1/4/16 report An Object In Motion(Retail Physics Hold True For Holiday), we believe elevated inventories at dept stores will pressure GM in 1Q (and we believe this will hold true for Kohl’s). Given the tough landscape, and with 1,000+ stores across the country, we believe Kohl’s will continue to be challenged to drive sales and earnings higher, despite its many in-store initiatives. We reiterate our Neutral rating…We are lowering our 2015E/2016E from $4.25/$4.29 to $4.00/$3.91. For 2016 we model comps 0-(1)% and op margin of 7.4% (down 80bps). We are lowering our TP from $49 to $46 to reflect our forecast reduction.

    Shares of Kohl’s have tumbled 16% to $43.04 at 11:28 a.m. today, while Macy’s (M) has dropped 2.6% to $40.56, and Nordstrom (JWN) has fallen 5.7% to $47.64.

     

  • [By Ben Levisohn]

    Cituigroup’s Kate McShane and Corinna Van der Ghinst explain why they’re still bullish on Under Armour (UA) despite fears that its deal with Kohl’s (KSS) could result in slower growth:

  • [By Ben Levisohn]

    Credit Suisse analysts Michael Exstein and Anjani Vedula call Kohl’s (KSS) the “canary in the coal mine” for mall retailers. They explain why:

    Rarely does a sector see a secular shift as dramatic as the one now occurring in retail in general and the mall anchors specifically. After last year’s poor operating and stock performance, many retail investors are now expecting a significant cyclical recovery in margins. However, we do not think this is a realistic expectation because mall anchors’ expense structures have fundamentally changed for two reasons: 1) sales mix has shifted towards the lower margin e-commerce channel; 2) brick & mortar operating margins are increasingly pressured (on both an absolute dollar basis as well as % of sales basis), leading to lower operating margins in aggregate.

    Using Kohl’s 10-K disclosure to illustrate this shift. We illustrate this secular shift in mall anchors’ expense structures by modelling the breakout in operating income for Kohl’s brick & mortar business (B&M) versus their e-commerce business. Kohl’s gives more details on the shift in SG&A than its peers, making it easier to illustrate the pressures the industry is under. In fact, in spite of the pressures, Kohl’s has maintained relatively constant sales as well as gross margins, no small feat considering they are absorbing shipping & handling charges associated with e-commerce. In effect, we are using Kohl’s as the “canary in the coal mine”, as a preview of a larger secular issue facing the mall anchor sector…

    While all retailers with an e-commerce business are exposed to these secular changes to some degree, those with a higher e-commerce penetration are more exposed, sooner. On the brick & mortar operations side, those retailers with the lowest wage rates are likely to be most impact by the essentially industry-wide wage increases brought on b

Top 10 Retail Stocks To Invest In Right Now: CarMax Inc(KMX)

CarMax, Inc., through its subsidiaries, operates as a retailer of used vehicles in the United States. It also sells vehicles that do not meet its retail standards to licensed dealers through on-site wholesale auctions, as well as sells new vehicles under franchise agreements. In addition, the company provides customers financing alternatives through its finance operation, CarMax Auto Finance, as well as through its third-party financing providers. Further, it offers a range of other related products and services, including the sale of extended service plans, guaranteed asset protection, and accessories; the appraisal and purchase of vehicles directly from consumers; and vehicle repair services. As of December 21, 2011, the company operated 107 used car superstores in 52 markets. CarMax, Inc. was founded in 1993 and is headquartered in Richmond, Virginia.

Advisors’ Opinion:

  • [By Rich Bieglmeier]

    On Tuesday, September 24, CarMax Inc. (KMX) will release sales and earnings for the second quarter ended August 31, 2013 and will host a conference call for investors at 9:00 a.m. ET.

  • [By Monica Gerson]

    CarMax, Inc (NYSE: KMX) is projected to report its quarterly earnings at $0.71 per share on revenue of $3.68 billion.

    ConAgra Foods Inc (NYSE: CAG) is expected to report its quarterly earnings at $0.59 per share on revenue of $2.86 billion.

Top 10 Retail Stocks To Invest In Right Now: Nordstrom Inc.(JWN)

Nordstrom, Inc., a fashion specialty retailer, offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. It offers a selection of brand name and private label merchandise. The company sells its products through various channels, including Nordstrom full-line stores, off-price Nordstrom Rack stores, Jeffrey? boutiques, treasure & bond, and Last Chance clearance stores; and its online store, nordstrom.com, as well as through catalog. Nordstrom also provides a private label card, two Nordstrom VISA credit cards, and a debit card for Nordstrom purchases. The company?s credit and debit cards feature a shopping-based loyalty program. As of September 30, 2011, it operated 222 stores, including 117 full-line stores, 101 Nordstrom Racks, 2 Jeffrey boutiques, 1 treasure & bond store, and 1 clearance store in 30 states. The company was founded in 1901 and is based in Seattle, Washington.

Advisors’ Opinion:

  • [By Ben Levisohn]

    Shares of Kohl’s have tumbled 16% to $43.04 at 11:28 a.m. today, while Macy’s (M) has dropped 2.6% to $40.56, and Nordstrom (JWN) has fallen 5.7% to $47.64.

  • [By Lisa Levin]

    Nordstrom, Inc. (NYSE: JWN) was down, falling around 7 percent to $49.15 after the company reported weaker-than-expected results for its fourth quarter on Thursday.

Top 10 Retail Stocks To Invest In Right Now: Starbucks Corporation(SBUX)

Starbucks Corporation purchases and roasts whole bean coffees. It operates approximately 16,858 stores, including 8,833 company-operated stores and 8,025 licensed stores. The company offers approximately 30 blends and single-origin premium arabica coffees. It also provides handcrafted beverages, such as fresh-brewed coffee, hot and iced espresso beverages, coffee and non-coffee blended beverages, Vivanno smoothies, and Tazo teas; and merchandise products, including home espresso machines, coffee brewers and grinders, coffee mugs and accessories, packaged goods, music, books, and gift items. In addition, it offers fresh food items, which comprise baked pastries, sandwiches, salads, oatmeal, yogurt parfaits, and fruit cups. Further, it also provides VIA ready brew coffee, bottled frappuccino beverages, discoveries chilled cup coffee, doubleshot espresso drinks, iced coffee, whole bean coffee, and ice creams. The company?s brand portfolio includes Tazo tea, Ethos water, Seatt le?s Best Coffee, and Torrefazione Italia Coffee. Starbucks Corporation sells its products in approximately 50 countries worldwide. Starbucks Corporation was founded in 1971 and is based in Seattle, Washington.

Advisors’ Opinion:

  • [By Ben Levisohn]

    Goldman Sachs analystKaren Holthouse and team add Starbucks (SBUX) to the firm’s Conviction List following last week’s earnings report, arguing that the coffee purveyor’s comparable-store sales are “not broken.” They explain:

    Associated Press

    We reiterate our Buy rating and add the shares to the Americas Conviction List given our belief that comps can re-accelerate into F4Q, and favorable valuation vs. the S&P (1.6x relative P/E, when the low end of SBUXs long- term range is 1.67x median S&P 3-year EPS growth) leaves room for multiple expansion as a result. We still view F17 consensus as marginally too high (EPS of $2.18 or 19% growth excl. the 53rd week vs. our estimate of $2.12 or 15% growth); however, we believe commentary regarding at least 15% growth on the F3Q earnings call was sufficient to reset investor expectations for costs associated with incremental partner/technology investments…

    Catalyst: (1) Underlying comp algorithm not broken…: Food plus beverage comp contributions were within 1% of the prior peak contribution, while the catch all other or marketing, digital, and loyalty fell to 0%. This supports the view that loyalty was the driver of disruption. (2)… and can reaccelerate post- loyalty: MOAP, in-app suggestive selling, and enhanced 1-1 marketing remain levers to reaccelerate the digital/marketing contribution, with the 1-2% contribution needed for 5-6% comp tracking below historical levels. (3) 12-month path not linear, but compelling PEG vs. the S&P can provide support: We would expect a 7% Americas comp lap in F1Q17 to become a bear thesis for some investors; however, we see valuation providing support. The low-end of Starbuck L/T algorithm (e.g. 15%) offers a 1.67x growth premium to the S&P median vs. a 1.55x multiple premium.

    Shares of Starbuck have gained 0.8% to $58.40 at 11:35 a.m. today.

  • [By Ben Levisohn]

    Stifel’s Mark Astrachan and Claire Chamberlin argue that Starbucks’ (SBUX) valuation is to high for a Buy rating despite “a long runway for growth” They explain:

    We do so believing consensus forward estimates are sound but that valuation, inline with a group of 15 global consumer brands, implies limited opportunity for multiple expansion. Starbucks is the preeminent global coffee brand with a long runway for growth driven by premiumization of coffee consumption and continued expansion of retail stores, both in the U.S. and abroad, and most particularly, in our view, the companys underpenetrated consumer packaged goods (CPG) business for coffee, tea, and ready-to-drink (RTD) beverages.

    Overall, we estimate Starbucks sales and EPS will grow at a 9% and 16% CAGR, respectively, between 2015 and 2018. We estimate fair value in the mid $60s, a mid-teens multiple on forward EBITDA, and would become more constructive on Starbucks shares on weakness from current levels, all else being equal. We believe a premium valuation is warranted given our expectation for continued solid sales and EPS growth driven by sustainable share gains of a favorably growing global coffee category, CPG optionality, and consistent free cash flow.

    How do Astrachan and Chamberlin determine Starbucks’ valuation is fair? Not by comparing it to other restaurants, but by comparing it to 15 other consumer stocks with global brands, including Chipotle Mexican Grill (CMG), Colgate-Palmolive (CL), and Nike (NKE). Here’s the list of 15 companies:

    At 30.3 times earnings, Starbucks is in line with the average of that group, which stands at 31.1 times, and thus worthy of a Hold rating, Astrachan and Chamberlin say.

    Shares of Starbucks have gained 0.8% to $60.02 at 3:26 p.m. today, while Chipotle Mexican Grill has fallen 2.8% to $458.63, Colgate-Palmolive has risen 0.8% to $70.43, and Nike has dipped 0.2% to $63.05.

  • [By Nelson Hem]

    “Move Over, FANGs: Value Investing Is Rebounding” by Andrew Bary suggests that value investing could be on the verge of a multi-year comeback. That would be good news for the likes of Boeing Co (NYSE: BA), Citigroup Inc (NYSE: C) and Time Warner Inc (NYSE: TWX), but bad news for former high fliers like Amazon.com, Inc. (NASDAQ: AMZN), Netflix, Inc. (NASDAQ: NFLX) and Starbucks Corporation (NASDAQ: SBUX). The article offers 16 ways to play a rebound.

  • [By Ben Levisohn]

    Chase announced that the company will process payments for Wal-Mart on the companys closed-loop network, ChaseNet. We would expect the economics of the deal to benefit Wal-Mart and thus the signing of the agreement and onboarding of another payment processor. The real takeaway for us is that today’s announcement adds one of the largest US retailers by revenues to the growing list of merchants that already accept ChaseNet including: Starbucks (SBUX), Marriott (MAR), United (UAL), Rite Aid (RAD), and Chevron (CVX). Thus, JPMorgan is building scale on the company’s platform and that needs to continue longer term.