The holiday shopping season has kicked off and retail outlets are optimistic that business during this period could be strong enough to fill in the pandemic-infused shortage. This season shoppers are likely to flock to home improvement merchandise since people have been homebound in the pandemic and most celebrations are likely to be indoors as well. Accessories and technical gadgets are also likely to be high in demand this festive season. However, the apparel market is likely to remain subdued for some time.
Athletic apparel seller, Lululemon (LULU), has seen tepid response from customers due to the closure of gyms and fitness centers during the pandemic. The stock dropped 20.1% since the beginning of September after its second quarter results. Revenue for the first half of the year declined 6.6% year-over-year as the loss from store closures eclipsed e-commerce sales growth. Higher operating costs also dragged down net profit. Moreover, LULU is a premium athleisure brand, and shoppers might restrain themselves from splurging in this economic slowdown.
At this juncture, investors can consider other retail stocks which have promising futures. Three such stocks are Best Buy Co., Inc. (BBY), Five Below, Inc. (FIVE), and Williams-Sonoma, Inc. (WSM). These retailers have a strong online presence and are positioned to benefit from the current situation due to their product mix. Most of their merchandise is extremely useful to people during an extended stay at home period.
Best Buy Co., Inc. (BBY)
BBY is one of the prominent technology retailers across the United States, Canada, and Mexico. The company primarily sells mobile phones, computing peripherals, networking products, wearables, tablets, e-readers, and more. BestBuy, Best Buy Express, Geek Squad, Best Buy Health, CST, GreatCall, Magnolia, and greatcall.com are some of the brands through which BBY sells its products. The retailer has over 1,000 large-format and 56 small-format stores.
In October, BBY partnered with Accenture (ACN) to accelerate its technology innovations. Over the next five years, both companies plan to focus on technology strategy, information security, technology risk management, and product development.
During the second quarter that ended August 2020, BBY’s enterprise revenue surged 3.9% year-over-year to $9.9 billion. In the last seven weeks of the second quarter, Enterprise sales climbed nearly 16% after stores opened. Due to the pandemic, most goods that are used at home like computing, appliances, and tablets were the largest sales drivers for the quarter. BBY’s EPS for the quarter surged 85% year-over-year to $1.65.
The street estimates revenue for the third quarter to rise 11.1% year-over-year to $10.8 billion. Meanwhile, analysts expect EPS to climb 43.4% to $1.62 for the third quarter.
On a year-to-date basis, BBY climbed 35.1% to close yesterday’s trading session at $118.65, 5.3% below its 52-week high at $124.89. Over the past six months, the stock has gained over 50.9%.
How does BBY stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
A for Overall POWR Rating
The stock is also ranked #2 out of 36 stocks in the Specialty Retailers industry.
Five Below, Inc. (FIVE)
FIVE operates in the United States as a specialty value retailer selling personal and home accessories. Personal accessories include jewelry, scarves, gloves, branded cosmetics, and trendy garments, and home décor merchandise includes lamps, frames, posters, candles, incense, lighting, and linen. FIVE also sells sports and fitness goods. The company operates across 38 states with nearly 1,000 stores. The retailer caters mostly to tweens and teens with their trendy merchandise.
Earlier this month, FIVE announced a collaboration with 2019 Fortnite World Cup Champion and 2019 Esports PC Player of The Year, Kyle Giersdorf aka “Bugha,” to launch a new product line. It includes seven gaming products exclusive to the brand, which is now being sold across the company’s retail outlets.
FIVE’s revenue for the second quarter that ended August 2020 jumped 2.1% year-over-year to $426.1 million. The comparable store sales for the re-opened period rose nearly 6%. FIVE opened net 62 new stores during the quarter across 24 states, bringing the total number of stores to 982. The company’s EPS for the quarter climbed 3.9% year-over-year to $0.53. The President and CEO of FIVE stated “The third quarter is off to a strong start and we are focused on the all-important holiday season.” He further added, “we feel good about our positioning for the second half of the year.” Overall, FIVE plans to open 110 to 120 net new stores in 2020.
Consensus estimate for the third quarter revenue is $445.2 million, indicating an increase of 18% year-over-year. Analysts also expect EPS to climb 5.6% to $0.19 for the third quarter.
FIVE ended yesterday’s trading session at $151.38, up 26.5% on a year-to-date basis. It is trading very close to its 52-week high of $159.59. During the past six months the stock rallied 70.2%
It’s no surprise that FIVE is rated a “Strong Buy” in our POWR Ratings system, with a grade of “A” in Trade Grade, Buy and Hold Grade, and Peer Grade. In the 36-stock Specialty Retailers industry, it is ranked #3.
Williams-Sonoma, Inc. (DE) (WSM)
WSM sells premium and sustainable home products through e-commerce websites, direct-mail catalogs, and retail stores. The company has operations across the United States, Puerto Rico, Canada, Australia, and the United Kingdom. WSM’s merchandise is marketed through the brands Williams Sonoma, Pottery Barn Kids, Pottery Barn, Williams Sonoma Home, Rejuvenation, and Mark and Graham. WSM’s most popular items are cookware, tools, cutlery, home appliances, home accessories, outdoor items, and furnishings.
In September, WSM announced a partnership with international music icon Dolly Parton for a signature holiday collection. The merchandise is inspired by the singer’s childhood holiday celebrations and features her favorite sugar cookie mix and a replica gingerbread log cabin. Considering the popularity of Parton, this marketing campaign is likely to draw a huge crowd ahead of the holiday shopping season.
During the second quarter that ended August 2020, WSM’s net sales grew 8.8% year-over-year to $1.4 billion. Seventy-six of the company’s total sales were from e-commerce channels and its demand comp growth for the quarter was approximately 19%. For the company’s brands, Williams Sonoma saw a record 29.4% growth, while the Pottery Barn and West Elm brands rose 8.1% and 7.0% during the quarter. EPS for the second quarter soared 107% year-over-year to $1.70.
Analysts expect revenue for the third quarter ending November to be $1.6 billion, up 9.8% year-over-year. Meanwhile, EPS is likely to grow at a rate of 9.4% per annum over the next five years.
WSM soared 30.6% year-to-date to end yesterday’s session at $95.91. Over the past six months, the stock climbed 44.18% as people are spending more time at home.
WSM’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with an “A” in Trade Grade and Industry Rank. It has a “B” for Buy & Hold Grade. WASM is ranked #25 out of 69 stocks in the Home Improvement & Goods industry.
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BBY shares were trading at $118.14 per share on Tuesday morning, down $0.51 (-0.43%). Year-to-date, BBY has gained 37.42%, versus a 13.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More…