Retail investors will get a good overview this week of what’s working, and what’s not. They should resist the urge to hunt for bargains among the latter group.
Home Depot (ticker: HD) publishes quarterly results Tuesday morning. Following its most recent quarterly report in August, shares jumped 4% in a day. Whether or not this quarter produces a similar reaction, the home improvement retailer is prospering. Same-store sales are seen rising 4% this fiscal year through January. The shares are up a whopping 38% year-to-date. They trade at a glamorous 22 times next fiscal year’s earnings.
Lowe’s (LOW), which reports Wednesday morning, sells for 18 times earnings. After its last quarterly report, shares jumped 10%. Both chains are benefiting from a reasonably healthy housing market and rising consumer spending.
Then come the retailers that are benefiting from the struggles of others. Target (TGT) stock has returned 71% since Barron’srecommended it a year ago. It’s emerging as a key market share winner as other chains close. The company reports results Wednesday morning. Don’t expect a 20% jump like investors got after last quarter’s report, but shares still look affordable, at 17 times next year’s projected earnings.
TJX (TJX) reports midday Tuesday, and Ross Stores (ROST) does after the market closes on Thursday. Both are closeout retailers, meaning they thrive as apparel and other goods go unsold at other chains. Both stocks are up sharply this year, but neither rose after last quarter’s earnings. Both fetch more than 20 times earnings.
Macy’s (M) and Victoria’s Secret owner L Brands (LB), which report Thursday morning, might look comparatively tempting at seven and eight times earnings, respectively. Both are down sharply this year, including big declines after their last earnings reports. But investors have lately been grabbing after value shares.
Careful there. In a Monday report, UBS analyst Jay Sole points out that while valuations for the softline retailers it covers are historically low, and a 6% drop in the store count during the third quarter was the second-slowest decline over the past 10 years, the group isn’t out of trouble. He points to 13 publicly traded retailers representing $30 billion in yearly sales, and nearly 12,000 stores, but also negative profits, collectively. That group includes J.C. Penney (JCP), Stage Stores (SSI) and Stein Mart (SMRT).
“We think ongoing e-commerce disruption, plus tariffs, could cause not only these, but also many other public and private retailers to close stores in 2020 and beyond,” writes Sole.
That’s good news for the closeout specialists, but not necessarily for full-price clothing sellers trying to make a go of it at the malls.
Write to Jack Hough at jack.hough@barrons.com
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November 19, 2019 at 01:10AM
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Macy’s, J.C. Penney, and Other Retail Stock Bargains to Beware Of - Barron's
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