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' 2.1% return has fallen short of the S&P 500’s 4.1% gain.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, 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:
Shoe Carnival (SCVL)
Market Cap: $508.7 million
Known for its playful atmosphere that features carnival elements, Shoe Carnival (NASDAQ: SCVL) is a retailer that sells footwear from mainstream brands for the entire family.
Why Do We Avoid SCVL?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Modest revenue base of $1.14 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 21.7% annually, worse than its revenue
Shoe Carnival’s stock price of $18.54 implies a valuation ratio of 12.3x forward P/E. Dive into our free research report to see why there are better opportunities than SCVL.
Target (TGT)
Market Cap: $58.93 billion
With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE: TGT) serves the suburban consumer who is looking for a wide range of products under one roof.
Why Should You Dump TGT?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 28.1% that must be offset through higher volumes
- Poor expense management has led to an operating margin of 5.1% that is below the industry average
Target is trading at $129.80 per share, or 15.9x forward P/E. Check out our free in-depth research report to learn more about why TGT doesn’t pass our bar.
One Consumer Retail Stock to Buy:
Warby Parker (WRBY)
Market Cap: $2.71 billion
Founded in 2010, Warby Parker (NYSE: WRBY) designs, manufactures, and sells eyewear, including prescription glasses, sunglasses, and contact lenses, through its e-commerce platform and physical retail locations.
Why Are We Backing WRBY?
- Aggressive expansion of new stores reflects an offensive push to quickly grow and sell in markets where it has few or no locations
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
- Earnings growth has massively outpaced its peers over the last three years as its EPS has compounded at 134% annually
At $22.11 per share, Warby Parker trades at 43.4x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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