In This Article:
Retailers are adapting their business models as technology changes how people shop. But many seem to be moving too slowly as their demand is lagging, causing the industry to underperform the market - over the past six months, retail stocks have shed 13%. This drop was particularly discouraging since the S&P 500 stood firm.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one consumer stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Consumer Retail Stocks to Sell:
Best Buy (BBY)
Market Cap: $15.77 billion
With humble beginnings as a stereo equipment seller, Best Buy (NYSE:BBY) now sells a broad selection of consumer electronics, appliances, and home office products.
Why Are We Hesitant About BBY?
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Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
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Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 22.3%
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Subpar operating margin of 3.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats
At $75.11 per share, Best Buy trades at 11.2x forward price-to-earnings. If you’re considering BBY for your portfolio, see our FREE research report to learn more.
Zumiez (ZUMZ)
Market Cap: $291.8 million
With store associates called “Zumiez Stash Members”, Zumiez (NASDAQ:ZUMZ) is a specialty retailer of street and skate apparel, footwear, and accessories.
Why Should You Sell ZUMZ?
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Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
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Subscale operations are evident in its revenue base of $889.2 million, meaning it has fewer distribution channels than its larger rivals
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Persistent operating losses suggest the business manages its expenses poorly
Zumiez is trading at $15.12 per share, or 39.1x forward price-to-earnings. Read our free research report to see why you should think twice about including ZUMZ in your portfolio, it’s free.
One Consumer Retail Stock to Buy:
Abercrombie and Fitch (ANF)
Market Cap: $3.86 billion
Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE:ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.
Why Is ANF a Good Business?
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Same-store sales growth averaged 14.6% over the past two years, showing it’s bringing new and repeat shoppers into its stores
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Share buybacks catapulted its annual earnings per share growth to 76.8%, which outperformed its revenue gains over the last five years
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Robust free cash flow margin of 11.1% gives it many options for capital deployment