3 Unfairly Punished Retail Picks
As most investors know, and many have experienced in their portfolio, the recently ended quarter was a dreadful one for most of retail. Soft consumer spending across the board, with the exception of a few happy, cash-laden outliers, led to not only disappointing sales for the quarter but tepid guidance for the coming one as well, and even the full year. Of course, with retail, there are often mispriced securities -- companies that have been unfairly punished by macro issues. A historically great retailer is likely to continue its practices, and will recover as the consumer does. Here are three retail picks unfairly gouged by the market.
Dick's Sporting Goods is one of the few big-box retailers that isn't witnessing its business being upended by technology. While e-retailing has certainly taken its toll on the business, Dick's sells products that people still tend to want to check out in person. The stores are attractive and well-run. The company is expanding its store footprint around the country, and though recent sales were weak and same-store sales saw a slight decrease, long-term outlook is attractive. Worth mentioning as well is the company's record earnings per share in the just-ended quarter, despite the strong headwinds.
The stock is up more than 6% in just the past week, and valuation isn't quite as cheap as value hunters may want. Overall, though, Dick's stock is trading down on the month and provides investors a compelling long-term story.
Sears Hometown and Outlets is an underfollowed business that spun off from polarizing Sears Holdings last year. The company came out of the blocks fast, climbing well into the double digits before year end 2012. But starting in the first quarter of this year, things slowed down, and after a rough recently ended quarter, the stock is down to nearly its market entry price.
Sears Hometown and Outlets offers investors a value-priced play on multiple businesses. The Outlet stores, fewer than 200 in number but growing, sell to the growing appliance market and have a favorable supplier relationship with its former parent company. Its smaller-format neighborhood Hometown stores continue to drift toward franchise-owned structures, improving gross margins and predictable cash flows over the long term. The stores do well in smaller markets, where a friendly, familial management attracts more customers than a domineering corporate mentality.
2013 won't be Sears Hometown and Outlets best year by far, but look further down the line and things brighten up. Shares are discounted now.
Trendy clothier Urban Outfitters actually made it through its earnings release relatively strong, but a recently released sales update has the stock down double digits. Same-store sales for the current quarter appear to be in the mid-single digits, and the market wanted more.
Urban's namesake store is set to grow modestly in the near term, with a slightly better outlook for the Anthropologie brand and strong double-digit growth from its smaller-format, premium-priced Free People stores. As mentioned in Barron's, management is committed to cutting down on inventory levels and improving speed to market -- a strategy that cuts down on the number of discounted items and other big-time markdowns.
Urban Outfitters is now trading back at pre-earnings levels and is a compelling long-term retail play.
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Fool contributor Michael Lewis owns shares of Sears Hometown and Outlet Stores. The Motley Fool recommends Amazon.com and Urban Outfitters. It owns shares of Amazon.com and Sears Hometown and Outlet Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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