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Forget Lululemon (LULU), Buy These 5 Retail Stocks Instead
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Yesterday’s after-market trading session must have been disheartening for Lululemon Athletica Inc. (LULU - Free Report) investors, as this yoga-inspired athletic apparel retailer crashed 17.5%, after trading in the green for quite some time. Evidently, this Zacks Rank #3 (Hold) stock has surged 9.9% in the last six months, outperforming the Zacks categorized Textile – Apparel Manufacturing industry’s slump of 14.1%. However, Lululemon’s dismal first-quarter fiscal 2017 outlook, that followed its fourth-quarter fiscal 2016 results, rendered negative sentiment among investors.
Lululemon’s fourth quarter results reveal that it posted adjusted earnings of $1.00 per share, which lagged the Zacks Consensus Estimate of $1.01 but leaped 17.6% year over year. This Vancouver-based company’s quarterly revenues advanced 12% to $789.9 million and beat the Zacks Consensus Estimate of $785 million. On a constant dollar basis too, revenues increased 12%, backed by strong comparable sales (comps) growth and expansion of its store base.
However, management stated that it began fiscal 2017 on a soft note, mainly on account of unfavorable merchandise assortment and issues related to visual merchandising, which weighed upon online sales. This, in turn, led to weak comps trend for the fiscal first quarter so far. Lululemon of late has been failing to meet customers’ demand of offering variety in color and range.
Moreover, the company has been grappling with severe competition from sportswear big-wigs like Nike, Inc. (NKE - Free Report) and Under Armour, Inc. (UAA - Free Report) , which have emerged as rivals by expanding in the athleisure space. Apart from this, Amazon.com, Inc. (AMZN - Free Report) is also extending its activewear offerings, thus intensifying the competition. All these factors, along with the sluggish mall traffic in the overall retail space and wavering demand for athletic wear, have reduced traffic for the company (both in store and online).
This compelled management to issue a soft outlook for first-quarter fiscal 2017, wherein it anticipates revenues in the range of $510–$515 million, with constant dollar comps expected to decline in the low single-digits range. This clearly lags analysts’ revenue expectations of $553 million (as per FactSet). Further. Lululemon anticipates earnings to range within 25–27 cents per share, much lower than the current Zacks Consensus Estimate of 39 cents. Well, the guidance also comes below the company’s prior-year earnings figure of 30 cents per share.
In an attempt to counter the aforementioned hurdles, Lululemon remains focused on product assortment improvements, website enhancements and acceleration of omni-channel models to strengthen its e-commerce and store trends. Also, the company remains committed toward achieving its goal of doubling revenues and more than doubling earnings by 2020. Based on these growth drivers, the company envisions fiscal 2017 sales to range from $2.55–$2.60 billion, based on low single-digits comps growth on a constant dollar basis.
However, its fiscal 2017 earnings forecast of $2.26–$2.36 per share, comes way below our current estimate of $2.58. Though the company’s long-term strategies bode well, we can’t ignore the near-term challenges which were highlighted by the drab first-quarter view. Hence, it’s advisable better to forget Lululemon for the time being and instead take a look at other retail stock, which appear promising.
5 Solid Retail Stocks
Even amid a challenging macroeconomic environment, the Retail – Wholesale sector presents itself as a lucrative investment hub. Notably, this sector accounted for approximately 8.5% of the total S&P 500 market cap in 2016, thus ranking third among the 16 Zacks sectors (Per the latest Earnings Trends report). So, we have zeroed in on five Retail-Wholesale stocks based on a favorable combination of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of ‘A’ or ‘B’. These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results. Not only this, these stocks have outperformed their respective industries.
We suggest investing in The Children's Place, Inc. (PLCE - Free Report) , a specialty retailer of children's apparel, with a VGM of ‘A’ and long-term earnings growth rate of 8%. The company posted an average positive earnings surprise of 39% in the trailing four quarters. In the past six months, the stock has surged roughly 55.5% and outperformed the Zacks categorized Retail-Apparel/Shoe industry, which declined 12.4%. Moreover, it sports a Zacks Rank #1. You can seethe complete list of today’s Zacks #1 Rank stocks here.
Another stock worth considering is Best Buy Co., Inc. (BBY - Free Report) , which has a long-term earnings growth rate of 10.5% and a VGM Score of ‘A’. This retailer of technology products, services, and solutions delivered an average positive earnings surprise of 27.7% in the trailing four quarters and flaunts a Zacks Rank #1. We note that in the past six months, while the stock has advanced approximately 26.8%, the Zacks categorized Retail-Consumer Electronic industry gained 15.5%.
Rush Enterprises, Inc. (RUSHA - Free Report) is also a solid bet. This integrated retailer of commercial vehicles and related services has a long-term earnings growth rate of 15%. The company posted an average positive earnings surprise of 12.8% over the trailing four quarters and has a VGM Score of ‘A’. In the past six months, while this Zacks Rank #1 stock exhibited a bullish run and surged 30.5%, the Zacks categorized Retail/Wholesale Auto/Truck industry climbed only 1.8%.
You can also count on Foot Locker, Inc. (FL - Free Report) , which has a long-term earnings growth rate of 9.7% with a VGM Score of ‘A’. This leading apparel, shoe and accessories retailer has posted positive earnings surprise for three straight quarters now, and carries a Zacks Rank #2. We note that in the past six months while the stock has advanced 12.6%, the Zacks categorized Retail-Apparel/Shoe industry declined 12.4%.
Last but not the least, you may also safely bet on Kate Spade & Company , a designer and marketer of apparel and accessories. The stock carries a Zacks Rank #1 and has a VGM Score of ‘B’. The company posted an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 28.3%. Over the past six months, the stock displayed a fabulous bull run on the index and has risen 33.3%, while the Zacks categorized Retail-Apparel/Shoe industry declined 12.4%.
So, don’t fret over Lululemon for long and instead bet on these five promising stocks that are likely to fetch you profitable returns in the future.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>
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Forget Lululemon (LULU), Buy These 5 Retail Stocks Instead
Yesterday’s after-market trading session must have been disheartening for Lululemon Athletica Inc. (LULU - Free Report) investors, as this yoga-inspired athletic apparel retailer crashed 17.5%, after trading in the green for quite some time. Evidently, this Zacks Rank #3 (Hold) stock has surged 9.9% in the last six months, outperforming the Zacks categorized Textile – Apparel Manufacturing industry’s slump of 14.1%. However, Lululemon’s dismal first-quarter fiscal 2017 outlook, that followed its fourth-quarter fiscal 2016 results, rendered negative sentiment among investors.
Lululemon’s fourth quarter results reveal that it posted adjusted earnings of $1.00 per share, which lagged the Zacks Consensus Estimate of $1.01 but leaped 17.6% year over year. This Vancouver-based company’s quarterly revenues advanced 12% to $789.9 million and beat the Zacks Consensus Estimate of $785 million. On a constant dollar basis too, revenues increased 12%, backed by strong comparable sales (comps) growth and expansion of its store base.
However, management stated that it began fiscal 2017 on a soft note, mainly on account of unfavorable merchandise assortment and issues related to visual merchandising, which weighed upon online sales. This, in turn, led to weak comps trend for the fiscal first quarter so far. Lululemon of late has been failing to meet customers’ demand of offering variety in color and range.
Moreover, the company has been grappling with severe competition from sportswear big-wigs like Nike, Inc. (NKE - Free Report) and Under Armour, Inc. (UAA - Free Report) , which have emerged as rivals by expanding in the athleisure space. Apart from this, Amazon.com, Inc. (AMZN - Free Report) is also extending its activewear offerings, thus intensifying the competition. All these factors, along with the sluggish mall traffic in the overall retail space and wavering demand for athletic wear, have reduced traffic for the company (both in store and online).
This compelled management to issue a soft outlook for first-quarter fiscal 2017, wherein it anticipates revenues in the range of $510–$515 million, with constant dollar comps expected to decline in the low single-digits range. This clearly lags analysts’ revenue expectations of $553 million (as per FactSet). Further. Lululemon anticipates earnings to range within 25–27 cents per share, much lower than the current Zacks Consensus Estimate of 39 cents. Well, the guidance also comes below the company’s prior-year earnings figure of 30 cents per share.
In an attempt to counter the aforementioned hurdles, Lululemon remains focused on product assortment improvements, website enhancements and acceleration of omni-channel models to strengthen its e-commerce and store trends. Also, the company remains committed toward achieving its goal of doubling revenues and more than doubling earnings by 2020. Based on these growth drivers, the company envisions fiscal 2017 sales to range from $2.55–$2.60 billion, based on low single-digits comps growth on a constant dollar basis.
However, its fiscal 2017 earnings forecast of $2.26–$2.36 per share, comes way below our current estimate of $2.58. Though the company’s long-term strategies bode well, we can’t ignore the near-term challenges which were highlighted by the drab first-quarter view. Hence, it’s advisable better to forget Lululemon for the time being and instead take a look at other retail stock, which appear promising.
5 Solid Retail Stocks
Even amid a challenging macroeconomic environment, the Retail – Wholesale sector presents itself as a lucrative investment hub. Notably, this sector accounted for approximately 8.5% of the total S&P 500 market cap in 2016, thus ranking third among the 16 Zacks sectors (Per the latest Earnings Trends report). So, we have zeroed in on five Retail-Wholesale stocks based on a favorable combination of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of ‘A’ or ‘B’. These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results. Not only this, these stocks have outperformed their respective industries.
We suggest investing in The Children's Place, Inc. (PLCE - Free Report) , a specialty retailer of children's apparel, with a VGM of ‘A’ and long-term earnings growth rate of 8%. The company posted an average positive earnings surprise of 39% in the trailing four quarters. In the past six months, the stock has surged roughly 55.5% and outperformed the Zacks categorized Retail-Apparel/Shoe industry, which declined 12.4%. Moreover, it sports a Zacks Rank #1. You can seethe complete list of today’s Zacks #1 Rank stocks here.
Another stock worth considering is Best Buy Co., Inc. (BBY - Free Report) , which has a long-term earnings growth rate of 10.5% and a VGM Score of ‘A’. This retailer of technology products, services, and solutions delivered an average positive earnings surprise of 27.7% in the trailing four quarters and flaunts a Zacks Rank #1. We note that in the past six months, while the stock has advanced approximately 26.8%, the Zacks categorized Retail-Consumer Electronic industry gained 15.5%.
Rush Enterprises, Inc. (RUSHA - Free Report) is also a solid bet. This integrated retailer of commercial vehicles and related services has a long-term earnings growth rate of 15%. The company posted an average positive earnings surprise of 12.8% over the trailing four quarters and has a VGM Score of ‘A’. In the past six months, while this Zacks Rank #1 stock exhibited a bullish run and surged 30.5%, the Zacks categorized Retail/Wholesale Auto/Truck industry climbed only 1.8%.
You can also count on Foot Locker, Inc. (FL - Free Report) , which has a long-term earnings growth rate of 9.7% with a VGM Score of ‘A’. This leading apparel, shoe and accessories retailer has posted positive earnings surprise for three straight quarters now, and carries a Zacks Rank #2. We note that in the past six months while the stock has advanced 12.6%, the Zacks categorized Retail-Apparel/Shoe industry declined 12.4%.
Last but not the least, you may also safely bet on Kate Spade & Company , a designer and marketer of apparel and accessories. The stock carries a Zacks Rank #1 and has a VGM Score of ‘B’. The company posted an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 28.3%. Over the past six months, the stock displayed a fabulous bull run on the index and has risen 33.3%, while the Zacks categorized Retail-Apparel/Shoe industry declined 12.4%.
So, don’t fret over Lululemon for long and instead bet on these five promising stocks that are likely to fetch you profitable returns in the future.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>