3 Retail Stocks that Will Benefit from a Hot Summer
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Support from the CARES Act and an increased digital presence over the past year have helped many retail companies survive the COVID-19 pandemic. And, as pandemic restrictions ease, job growth and direct recovery checks are likely to increase consumer spending over the coming months and help retail stocks gain momentum. So, we think L Brands, (LB), Crocs (CROX), and Abercrombie & Fitch (ANF) are poised to make a strong comeback this summer.
U.S. retail stores reported an 18.3% month-over-month rise in sales in May 2020 due to panic shopping but faced declining sales thereafter. Despite being overshadowed by soaring e-commerce sales over the past year, the retail industry demonstrated operational resiliency through rapid digitization and support from the $2 trillion-plus CARES Act in March 2020. This is evident in the SPDR S&P Retail ETF’s (XRT) 77.3% returns over the past six months versus SPDR S&P 500 Trust ETF’s (SPY) 20.6% gains over this period.
Multiple direct recovery checks paid out by the federal government have been to the benefit of retailers through the increased consumer spending they have generated. Also, a declining unemployment rate is expected to boost consumer spending further in the near term. And, as more people are vaccinated, brick-and-mortar retailers are expected to witness increasing foot traffic. The National Retail Federation expects the retail sales to exceed $4.33 trillion in 2021.
Therefore, we think it is wise to invest in budding retail stocks L Brands, Inc. (LB), Crocs, Inc. (CROX) and Abercrombie & Fitch Company (ANF) because they are well-positioned to deliver solid returns this summer with their established retail chains and digital presence.
L Brands, Inc. (LB)
LB is a specialty retailer of women’s intimate and other apparel, beauty and personal care products, home fragrance products, and accessories. The company operates in two segments—Bath & Body Works and Victoria's Secret. It sells its merchandise through company-owned specialty retail stores, Websites and international franchise, license and wholesale partners.
In March, LB announced actions to further enhance shareholder value. The company hopes to repay $1.04 billion of debt with the cash. It plans to redeem $285 million of the outstanding bonds, due February 2022 and $750 million of outstanding secured bonds, due July 2025. LB also announced a new $500 million share repurchase plan that will replace the remaining $79 million under the previously authorized program. The company also reinstated its annual dividend at $0.60 per share, beginning with a quarterly dividend to be paid in June 2021.
LB’s net sales increased 2.4% year-over-year to $4.82 billion for the fourth quarter, ended January 30. The company’s gross profit was $2.31 billion, up 28.6% from the prior-year period. Its operating income increased 1457.4% year-over-year to $1.27 billion. Its net income was $860.33 million for the quarter, compared to a net loss of $192.26 million in the fourth quarter of 2019. LB’s EPS was $3.03, compared to a $0.70 loss per share in the year-ago period.
A $0.66 consensus EPS estimate for the current quarter, ending July 31, represents a 165% rise year-over-year. LB surpassed consensus EPS estimates in three of the trailing four quarters. The $2.89 billion consensus revenue estimate for the current quarter represents a 24.5% gain year-over-year. LB’s EPS is expected to grow at a 14%-plus rate over the next five years. The stock has gained 501.9% over the past year to close Friday’s trading session at $67.29.
LB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum and Quality. We have also graded LB for Value, Growth, Sentiment and Stability. Click here to access all LB’s ratings.
LB is ranked #7 of 66 stocks in the B-rated Fashion & Luxury industry.
Crocs, Inc. (CROX)
CROX is engaged in the design, development, manufacturing, marketing, distribution and sale of casual lifestyle footwear and accessories for men, women, and children. The company operates through three geographic segments—America, Asia Pacific and Europe, Middle East & Africa (EMEA). The company sells its products through wholesalers, retail stores, e-commerce sites, and third-party marketplaces.
On March 11, CROX collaborated with Grammy Award-winning recording artist Justin Bieber to pair CROX’s Classic Clog with a pair of tall white socks from Drew house, Bieber's personal clothing brand, for a one-of-a-kind fashion statement. To engage fans during its global launch on March 16, CROX had partnered with Snapchat (SNAP) for an augmented reality gamification activation that allows consumers to interact with the nostalgic, arcade-style look and feel of the campaign.
On March 9, CROX priced a $350 million offering of 4.250% senior notes due 2029 in a private placement. The company intends to use the net proceeds from the offering to repay up to $180 million of outstanding borrowings under its revolving credit facility and the remainder for general corporate purposes.
For its fiscal year 2021 first quarter, ended March 31, CROX’s revenues increased 63.6% year-over-year to $460.10 million. The company’s non-GAAP gross profit came in at $254.20 million, up 188.2% from the prior-year period. Its non-GAAP income from operations was $125.67 million, which represented a 376.9% improvement year-over-year. While its non-GAAP net income increased 552.5% year-over-year to $99.49 million, its non-GAAP EPS increased 577.3% from the prior-year period to $1.49.
For the current quarter, ending June 30, analysts expect CROX’s EPS to be $1.51, which represents a 49.5% improvement year-over-year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect the stock’s revenue to be $558.07 million for the current quarter, up 123.6% from the prior-year period. The company’s EPS is expected to grow at 10% per annum over the next five years.
CROX has gained 362.1% over the past year and 182.3% over the past nine months. It closed Friday’s trading session at $108.92.
CROX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has an A grade for Quality, and a B grade for Growth and Momentum. Click here to see the additional ratings for CROX (Value, Sentiment and Stability).
CROX is ranked #11 in the same industry.
Abercrombie & Fitch Company (ANF)
ANF operates as a specialty retailer that offers an assortment of apparel, personal care products, intimates, and accessories for men, women, and children. The company operates through two brand segments: Abercrombie and Hollister. It sells products through its stores and direct-to-consumer channels, various third-party wholesalers, franchises and licensing arrangements, and e-commerce platforms.
On May 06, Hollister Co., an ANF teen brand division, expanded its relationship with leading social media personalities Charli and Dixie D’Amelio to launch Social Tourist, a new trend-forward apparel brand within the ANF portfolio. Set to launch on May 20, the company hopes to gain good sales through Social Tourist, which mainly reflects Gen Z’s unique outlook in living in a digitally native environment.
In February, ANF announced its commitment to source all electricity used at its global home office and distribution centers at New Albany, Ohio, from renewable generation, beginning in 2023. It had signed a 13-year, 100% renewable energy supply agreement with an Ohio-based AEP Energy, a subsidiary of American Electric Power, to obtain 30 GWh hours annually.
ANF is scheduled to report its fiscal year 2021 first quarter results on May 26, before the market opens. For the fourth quarter, ended January 30, its net sales increased 36.9% sequentially to $1.12 billion. Its gross profit came in at $679.02 million, which represents a 29.4% rise from its prior quarter. Its non-GAAP operating income was $131.50 million, compared to a $79.03 loss in the third quarter of 2020. Its non-GAAP net income was $97.33 million for the quarter, compared to a $142.71 million net loss in the previous quarter. Also, its adjusted EPS was $1.50, compared to a $2.28 loss per share in the prior quarter.
Analysts expect ANF’s EPS to be $1.53 for its current fiscal year, which represents a 309.6% improvement year-over-year. Analysts expect the stock’s revenue to be $3.50 billion for the current year, up 12.1% from the prior-year period. The company’s EPS is expected to grow at 18% per annum over the next five years.
The stock has gained 301.1% over the past year and 311.6% over the past nine months. It closed Friday’s trading session at $40.75.
It’s no surprise that ANF has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Momentum and Quality, and a B grade for Value. In addition to the POWR Ratings grades we’ve just highlighted, one can see ANF’s ratings for Growth, Stability and Sentiment here.
The stock is ranked #6 in the same industry.
LB shares were trading at $69.09 per share on Monday afternoon, up $1.80 (+2.67%). Year-to-date, LB has gained 85.78%, versus a 12.56% rise in the benchmark S&P 500 index during the same period.
L Brands, Inc. (LB) is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.3 Retail Stocks that Will Benefit from a Hot Summer appeared first on StockNews.com