Retail, a lucrative investment according to analysts

Thursday, 12 April 2012

March has definitely been a good month for fashion and apparel retailers, as warmer than average weather encouraged shoppers to go down the high street to renew their wardrobes. Coach, Inc. (NYSE:COH) fell -3.12 per cent to settle at $72.90 (Rs 3,809), Ralph Lauren Corp (NYSE:RL) moved down -3.77per cent to end at $169.80 (Rs 8,872) while Limited Brands, Inc. (NYSE:LTD) plunged -2.88 per cent to finish on Tuesday at $46.53 (Rs 2,431).

“Retail, owing to its huge spectrum, remains a lucrative investment avenue for investors. Moreover, the sector also reflects consumer spending trends, an important parameter to gauge the health of the economy (consumer spending accounts for approximately 2/3rd of the economy). Thus, identifying future winners from this sector would be a good idea to make an investment decision,” highlight analysts at Zacks Investment Research.

Easter holiday and warm weather led a majority of the retailers to register healthy sales in March. Macy's Inc. (M), reported same-store sales growth of 7.3 per cent. Total sales were up 6.9 per cent to $2,358 million (Rs 12,320 crores). “Macy’s has been taking prudent steps to increase sales, profitability and cash flows. These include integration of operations, consolidation of divisions and customer-centric localization initiatives. To help drive traffic, Macy’s continues to focus on price optimization, inventory management and merchandise planning,” summarized at Zacks.

Meawhile, Ross Stores Inc. (ROST marked a 10 per cent increase in same-store sales in March 2012. On the back of strong comps performance, the company raised its earnings forecast for the first quarter of 2012. The company now expects earnings per share to come in the range of 89 cents (Rs 46) to 90 cents (Rs 47), compared with the prior guidance of 82 cents (Rs 42) to 86 cents (Rs 44).

Also Target Corporation (TGT) registered a hike of 7.3 per cent in comparable store sales for March 2012. Net retail sales rose 7.9 per cent to year over year to $6,427 million (Rs 33,582 crores). As Zacks´team pointed out in a note to investors, “Target’s efficient marketing, multi-channel strategy, product innovation, compelling pricing strategy and new merchandise assortments, will drive comparable-store sales and operating margins in the long term. We expect the company to gain market share, and believe that more focus on consumable items should boost sales and earnings in a sluggish environment.”

In another week plagued with corporate releases, Limited Brands Inc. posted better-than-expected comparable-store sales for the five-week period ended March 31, 2012. The owner of Victoria's Secret and La Senza chains has sustained its growth momentum. Limited Brands' comparable-store sales for March 2012 rose 8 per cent following a similar percentage increase in February 2012 and 14per cent jump in March 2011.Comparable-store sales for March increased 10 per cent at Victoria's Secret Stores & Victoria's Secret Beauty, 6 per cent at Bath & Body Works & The White Barn Candle Co. and 1per cent at La Senza. Sales at Victoria's Secret Direct climbed 3 per cent.

Finally, Liz Claiborne Inc. (LIZ US) rose 7.2 per cent to $13.25 (Rs 692) and advanced 7.4 per cent earlier, the most intraday since March 30, reported ´The San Francisco Chronicle´. The stock closed the day before at $12.36 (Rs 645) a share, a 28 per cent discount to 2013 sales. That's cheaper than 94 per cent of similar-sized US apparel companies, data compiled by Bloomberg show.

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