Yes, you read that title right. While the overarching narrative surrounding the retail industry may be to “get out now because retail is dying,” there are still some companies out there that are worth taking a long, hard look at.
One of the biggest factors impacting retailers, of course, is e-commerce giant Amazon.com (AMZN - Free Report) . Having become much more than just an online bookseller, Amazon has grown to be a digital one-stop shop for almost everything these days. But there are certain markets that Amazon hasn’t completely dominated, and retailers operating in these particular corners of the industry are thriving.
Ulta Beauty (ULTA - Free Report) , for instance, is one of the hottest retailers, if not stocks, out there right now. Its in-store and online sales continually grow quarter after quarter, and the company has built a loyal customer base through its rewards program.
The retail industry may be struggling, but it’s not dead yet. Let’s take a look at 3 retail stocks investors should consider for their portfolio.
1. Lululemon (LULU - Free Report)
Lululemon is a yoga-inspired athletic apparel company that has become a leader in the fitness world since its founding in 1998. The company makes a number of different types of athletic wear for women, men, and kids, and while it operates in the ultra-competitive “athleisure” market, Lulu has been able to stay on top because of its luxe status and loyal customer base.
In its most recent quarter, Lulu surprised investors with an all-around impressive report. Both the top and bottom line beat analyst estimates and improved year-over-year, and these positive results were driven by the company’s continued product innovation. For instance, customers have been flocking to Lulu’s $98 Enlite Bra, and the brand’s increasing appeal to men are both benefits that help set the company apart from competitors Nike (NKE - Free Report) and Gap’s (GPS - Free Report) Athleta.
Looking ahead, Lulu expects earnings growth of 12.4% for the current year, with 15 analysts revising their estimates upwards in the last 30 days compared to none lower; sales are expected to grow about 10.3% in the same time frame. With a P/E of over 25, Lulu is not cheap. Investors, though, have always been willing to pay more for a stock because of perceived stature, and Lululemon is in the upper echelons of athletic wear. What’s more, LULU is a Zacks Rank #2 (Buy).
2. Tilly’s (TLYS - Free Report)
Tilly’s is a popular teen retailer based in Irvine, California, and is known for its trendy, SoCal-inspired clothing and accessories geared towards surfing, skateboarding, and snowboarding. Similar to rival Zumiez , Tilly’s sells brands like Adidas Originals (ADDYY - Free Report) , Vans, RVCA, Billabong, Hurley, and Converse, among many others.
Tilly’s has been a strong performer since its better-than-expected second quarter earnings, having gained roughly 34% since it beat both top and bottom line estimates. In particular, comparable store sales, which includes e-commerce, increased 2.1%, a noticeable increase from the 0.9% growth seen in the year-ago quarter. Tilly’s smartly marketed to the back-to-school crowd, highlighting popular brands that teenagers covet and showing investors that the company knows and understands its core customer.
A #2 (Buy) on the Zacks Rank, Tilly’s is looking at almost 20% earnings growth for the current year, with about 1.2% sales growth in same time period. Its P/E of nearly 21 comes in well above the Retail-Apparel and Shoes industry, a reflection both of Tilly’s perception among investors and its popularity with its teen customers. While its steep drop in valuation over the last year shows how skeptical investors became in teen retailers, and retail overall, Tilly’s looks to be on the rebound.
3. Burlington Stores (BURL - Free Report)
Originally known as Burlington Coat Factory, Burlington Stores is a leading off-price retailer. It sells everything from women’s ready-to-wear apparel, menswear, youth apparel, baby products, footwear, accessories, and home goods.
Since the financial crisis nearly a decade ago, discount chains like Burlington have thrived, in part because it is a company that knows its customer--and that customer likes the thrill of a treasure hunt--but the retailer has also adapted to meet the demands of its core base over the years.
Its earnings results have reflected these changes, and it has worked in Burlington’s favor. Last quarter, the discount chain continued its upbeat performance in fiscal 2017, surging past top and bottom line estimates; comps grew 3.5%, marking the 18th straight quarter of growth in this category.
Sitting at a #2 (Buy) on the Zacks Rank, Burlington plans on focusing more on its home, beauty, and women’s apparel categories, in addition to opening 37 net new stores. The retailer expects earnings growth of almost 30% for the current year, with sales increasing 8.8% in the same time frame. Since early 2016, BURL has consistently traded above the S&P 500. Its current P/E of right around 21 is a reflection of the rise of off-price retailers, and the high-value placed on these companies right now in the retail space.
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