Pick wisely when choosing retail stocks.
Despite increasing online competition, the U.S. retail sector stabilized a bit in 2019. Shares of the SPDR S&P Retail exchange-traded fund (ticker: XRT) are up 5.7% year-to-date. Third-quarter retail earnings season was mostly disappointing heading into the critical holiday shopping season. Barclays analyst Adrienne Yih recently initiated coverage on the U.S. specialty retail, apparel and e-commerce space. Yih says she has a neutral outlook for the overall sector, but there are plenty of buying opportunities for choosy investors. Here are seven of Barclays' top retail stocks to buy this holiday shopping season.
Yih says Nike has a valuable brand and is a leader in technology and design innovation. In October, Nike announced board member John Donahoe will replace Mark Parker as CEO in January. Parker has served as CEO since 2006, but Donahoe is expected to spearhead Nike's transformation to a digitally focused, vertically integrated athletic apparel retailer. Nike plans to double its digital penetration from about 15% to 30% by 2023. Nike is Yih's top U.S. retail stock pick. Barclays has an "overweight" rating and $111 price target for NKE stock.
TJX Companies (TJX)
TJX is one of the few retailers that has outperformed the overall S&P 500 index in the past year, gaining 32.5% year-to-date. Yih says TJX is one of the few U.S. retailers that offers a value for consumers, helping insulate the company from online cannibalization. Same-store sales were up 4% in the third quarter, and management reported the critical holiday quarter is off to a solid start. Performance at Marmaxx and HomeGoods has been strong, and international growth has been impressive. Barclays has an "overweight" rating and $66 price target for TJX stock.
Ross Stores (ROST)
Like TJX, Yih says Ross is among her favorite discount retailers in a difficult environment. Ross reported 8% revenue growth and 5% same-store sales growth in the third quarter. In addition, the company has made share buybacks a priority and has been opening around 100 stores per year in a market in which many retailers are aggressively closing stores. Ross's exceptional execution has been reflected in its stock gains, which have more than doubled the S&P 500's gains over the past 12 months. Barclays has an "overweight" rating and $124 price target for ROST stock.
VF Corp. (VFC)
VF is a lifestyle brand apparel wholesaler and the parent company of more than 30 popular brands, including The North Face, Vans and Timberland. In the third quarter, Vans sales were up 16% and The North Face sales were up 10% after adjusting for foreign exchange rates. Digital sales were up 18%, and same-store sales growth was 9%. Despite concerns about the "geopolitical and macroeconomic environment," gross margins actually expanded 0.9%, a rarity in the current retail environment. Barclays has an "overweight" rating and $103 price target for VFC stock.
Burlington Stores (BURL)
Burlington Stores is another of Yih's discount retail favorites. Burlington shares have outperformed the market in the past year, gaining 39% overall. Burlington recently added a new CEO, and the new management team will likely push to continue to improve Burlington's operating efficiency. Like other discount retailers, Burlington has been relatively immune to the e-commerce pressures threatening most of the brick-and-mortar retail space. In the past two years, sales are up more than 9% and adjusted net income is up more than 30% annually. Barclays has an "overweight" rating and $239 price target for BURL stock.
Ralph Lauren Corp. (RL)
Ralph Lauren shares are up 19% in the past three months, and the company reported better-than-expected sales and margins in the most recent quarter. Operating margins expanded 1% to 14.9%. Lih says Ralph Lauren has been proactive in rebuilding its global brand, and the company's latest numbers indicate its efforts are beginning to pay off. Unfortunately, holiday quarter numbers will likely continue to be pressured by trade war tariffs, uncertainty in Hong Kong and preparations for Brexit. Barclays has an "overweight" rating and $130 price target for RL stock.
Lih says Williams-Sonoma offers investors same-store sales momentum, an opportunity for growth in its West Elm brand and a compelling risk-reward skew at recent prices. Comparable brand revenue was up 6.3% in the third quarter, the company's second consecutive quarter of greater than 6% growth. Williams-Sonoma also raised the low end of its full-year sales guidance and said it is still targeting long-term revenue growth in the double digits. In the meantime, investors can enjoy its 2.8% dividend and $600 million buyback program. Barclays has an "overweight" rating and $77 price target for WSM stock.
Barclays' top retail stocks to buy:
-- Nike (NKE)
-- TJX Companies (TJX)
-- Ross Stores (ROST)
-- VF Corp. (VFC)
-- Burlington Stores (BURL)
-- Ralph Lauren Corp. (RL)
-- Williams-Sonoma (WSM)
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