Retailers are adapting their business models as technology changes how people shop. Still, secular trends are working against them as e-commerce continues to take share from brick-and-mortar stores. This puts retail stocks in a tough spot, and over the past six months, the industry’s returns were flat while the S&P 500 gained 12.1%.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one resilient consumer stock at the top of our shopping list and two we’re steering clear of.
Two Consumer Retail Stocks to Sell:
CarMax (KMX)
Market Cap: $8.70 billion
Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE: KMX) is the largest automotive retailer in the United States.
Why Do We Pass on KMX?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Gross margin of 6.6% is below its competitors, leaving less money for marketing and promotions
CarMax’s stock price of $61.15 implies a valuation ratio of 22.2x forward P/E. Check out our free in-depth research report to learn more about why KMX doesn’t pass our bar.
Williams-Sonoma (WSM)
Market Cap: $26.88 billion
Started in 1956 as a store specializing in French cookware, Williams-Sonoma (NYSE: WSM) is a specialty retailer of higher-end kitchenware, home goods, and furniture.
Why Does WSM Worry Us?
- Products aren’t resonating with the market as its revenue declined by 1.1% annually over the last three years
- Store closures are a headwind for growth and suggest it’s rightsizing operations to optimize sales at existing locations
- Earnings growth over the last three years fell short of the peer group average as its EPS only increased by 6.4% annually
Williams-Sonoma is trading at $228.57 per share, or 23.7x forward P/E. To fully understand why you should be careful with WSM, check out our full research report (it’s free).
One Consumer Retail Stock to Watch:
Boot Barn (BOOT)
Market Cap: $4.56 billion
With a strong store presence in Texas, California, Florida, and Oklahoma, Boot Barn (NYSE: BOOT) is a western-inspired apparel and footwear retailer.
Why Are We Fans of BOOT?
- Offensive push to build new stores and attack its untapped market opportunities is backed by its same-store sales growth
- Brick-and-mortar locations are witnessing elevated demand as their same-store sales growth averaged 6.7% over the past two years
- Exciting sales outlook for the upcoming 12 months calls for 14.5% growth, an acceleration from its three-year trend
At $150.77 per share, Boot Barn trades at 17.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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