Unseasonably warm weather is heating up the retail space. For many retailers, higher temperatures mean higher sales volume. With last month marking the warmest March in more than 50 years, according to Planalytics, brick-and-mortars had plenty to cheer about. Retailers reported record comps for March, which has investors wondering whether retail stocks can maintain the momentum. It won't be easy, but the three companies I highlight below are on course for record highs this summer.
A winning combination
Same-store-sales are a key metric in the retail world because they give investors a healthy read on a company's ability to grow revenue at locations open for more than one year. For the 21 chains that reported already, net sales grew 6%. Same-store sales also rose 4.4%.
But it was the low-price apparel retailers that benefited the most. Familiar names like Target (NYS: TGT) , Ross Stores (NAS: ROST) , Limited Brands (NYS: LTD) , and TJX (NYS: TJX) led the pack. However, one month of solid performance does not guarantee successful sales in the months that follow. To keep the good times coming, these companies will need more than just favorable weather. By taking a look at what last month's top gainers did to drive customers through their doors, you can get an idea of what's in store for these retailers down the road.
Dress for less
Discounter Ross blew past analysts' estimates for 4.6% growth, instead swelling 10% during the month of March. The strong results prompted the clothing retailer to raise its first-quarter guidance. Ross Stores now expects to earn between $0.89 and $0.91 per share for the upcoming quarter. As the largest discount apparel and home fashion chain in the country, you'd think the company had maxed out its growth potential -- but that isn't the case.
Ross closed out 2011 by expanding into the Midwest and opening 12 new stores in the Chicago area. The company also has room for continued growth, because its 1,037 locations are found in just 29 states. I expect Ross to outperform the broader market this year, which is why I'm giving the stock an outperform rating on my profile in Motley Fool CAPS. However, the stock currently trades around $59 with a P/E of 20. While I like the company, I'm waiting for a dip in share price before jumping in.
Investors can expect more and pay less
Target was another retailer to raise its forecast after better-than-expected sales. The company's comps climbed 7.3%, ahead of estimates for an increase of 5.7%. The business is firing on all cylinders. Last year Target began organizing a push into the Great White North, marking its first move outside the United States. Today the retail giant is set to open 100 to 150 new Target locations in Canada beginning next year. In anticipation of its Canadian debut, the retailer launched a "pop-up store" in Toronto to coincide with its "Jason Wu for Target" line.
One of the company's strengths is its flawless execution. So it's no wonder that Target's Wu launch in Canada was a runaway success, and to top things off, all proceeds from the event were donated to the United Way Canada. Limited-edition collections from world-renowned designers have earned Target millions of loyal shoppers, leading me to believe that Target's arrival in the country next year could be even bigger than management expects. With shares trading around $57 and a P/E of 13, I think Target is a bull's-eye investment.
That leaves us with Limited Brands and TJX to battle it out for the remaining "Hot Stock" spot. Discount chain TJX generated $2.3 billion in March sales. For comparison, Limited Brands only earned $840 million for the month. TJX stores like Marshalls, T.J. Maxx, and HomeGoods are doing so well, in fact, that the company raised guidance for its fiscal first quarter. Shares are currently trading near a 52-week high of $40, with a P/E of 20. While I expect TJX to continue its strong performance, I'd wait for a lower price before buying into the stock.
Hot to trot
There you have it. While breezy March comps helped all four of these retailers catch an early start to summer, the stocks to own for the long haul are undoubtedly Ross, Target, and TJX. If these hot stock suggestions left you craving more, I invite you to discover one stock the Motley Fool's brightest analysts say will beat the market this year. Find out now in this free report, titled: "The Motley Fool's Top Stock for 2012." It won't be around forever, so click here to get your copy now -- it's free.
At the time thisarticle was published Foolish contributor Tamara Rutter owns shares of Target. Follow her onTwitter, where she uses the handle@TamaraRutter, for more Foolish insight and investing ideas. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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