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Some Traditional Retailers, Once Left For Dead, Are Roaring Back

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Not long ago, the influence of Amazon (AMZN - Free Report) on traditional brick-and-mortar retailers seemed like an insurmountable hurdle.  Industry insiders even coined a phrase for  what happened to retail stocks as they lost big chunks of market share to the online giant – “Getting Amazoned.”


As Amazon has expanded into other areas, like groceries with its purchase of Whole Foods, and was rumored to be contemplating entering the market for prescription drugs, investors have been quick to dump the stocks of any companies whose core business seemed to be in Amazon’s crosshairs.


Obviously, Amazon and other online sellers do have certain advantages over operations that require costly real estate and higher labor costs.  The online juggernaut can concentrate huge amounts of inventory in less expensive warehouse space and ship goods quickly to consumers who don’t have to leave their homes.


Several retail chains did suffer mightily as consumer preferences changed, most notably Toys-R-Us, which announced earlier this year that they would be unable to complete a planned restructuring under Chapter 11 Bankruptcy and would be liquidating all inventory and closing all remaining stores.


Not every retailer has suffered equally.  Let’s take a look at … that are adapting well to the new landscape and thriving, even in the Age of Amazon.

Macys’ (M - Free Report) , shares have risen 37% YTD versus a 2% rise in the S&P 500.


Last week the company beat estimates for both earnings and revenues and raised full year guidance.


Macy’s reported Q1 revenues of $5.5B, a 3.5% increase over Q1 2017 and net earnings of $0.48/share, beating the Zacks Consensus Estimate of $0.36/share and nearly doubling the $0.26/share they reported in the same quarter last year.


Same-store sales were up 4.2%


Aggressive cost-cutting measures, strategic store closures and an improved marketing plan contributed to the excellent results. Macy’s has developed a hybrid model in which its customers can shop online, but make returns and exchanges at a physical location.  They also have opened branded “pop-up” shops in many locations, they allow consumers in many markets to check out using an expediated procedure on a smartphone and have plans to dramatically expand its popular off-price “Macy’s Backstage” business.


Macy’s updated its earnings guidance for full-year 2018 to a range of $3.75/share to $3.95/share, an increase of $0.20/share over previous guidance.


WalMart (WMT - Free Report) and Target Stores (TGT - Free Report) have also both used innovative new strategies to cater to changing consumer preferences while keeping significant traffic in traditional store locations.  Both companies also sell groceries, which are an important draw, because they keep customers returning to retail stores over and over to purchase perishable items that cannot be easily stockpiled.



WalMart reported strong Q1 results last week, with small beats in both revenues and earnings. Same store sales were up 2%.  Notably, especially with regard to competing with internet-only retailers, online sales at WMT were up 33%, signifying that they are gaining traction in online sales.


Target reports Quarterly results Wednesday morning before the market opens.  The Zacks Consensus Estimates are for $16.74B in revenues, an increase of 2% over last year and earnings of $1.34/share, an increase of 9%.  


Specialty Athletic retailer Lululemon Athletica (LULU - Free Report) has been a strong performer in 2018, with shares rising 15% versus an industry average of 10%.  



Like other retailers who continue to compete effectively, Lululemon has a robust online strategy that compliments its retail stores.  In 2017, online sales were up a whopping 44% over the previous year.  The company has not ignored brick-and-mortar and has plans to open 20-30 international stores in 2018.  


Lulu has an ambitious plan to increase revenues to $4B by 2020 with a combination of traditional and online retailing. Q1 results, scheduled to be released May 31st will be an important predictor of whether they remain on the fast track to get there.  The Zacks Consensus Estimate for revenues is $651M and earnings are expected to be $0.45/share.



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