Everyone has heard of the phrase “April showers bring May flowers.” However, given last month’s unseasonably cold weather, I’d like to propose a new saying: “Cold April days kept shoppers at bay.” Judging from the latest retail sales data, the chilly spring weighed on many brick-and-mortar retailers. As a result, many retail stocks have pulled back dramatically over the past several weeks.
However, there still were a few players who were able to pull off solid quarterly results. Today, several major retailers released their quarterly sales and earnings. Among them, there were a few big surprises to the upside, as well as some high-profile disappointments. So let’s take moment to go through the bargain bin and see which retail stocks are excellent buys after earnings, and which should be left on the shelf.
I’d first like to highlight Costco Wholesale (COST) which is rallying today after its fiscal third-quarter report. Last quarter, the wholesale warehouse operator contended with lower gasoline prices and unfavorable foreign exchange rates. Regardless, Costco’s sales still rose 2% year-on-year to $26.15 billion. A 5.8% increase in membership fees helped the company’s top line.
Sales at stores open a year or more were flat; excluding the impact of gas prices and foreign exchange rates, comparable sales climbed 3%. Meanwhile, Costco’s bottom line grew 5.6% to $545 million, or $1.24 per share. Analysts were looking for $1.22 EPS, so Costco posted a 1.6% earnings surprise. I consider COST a B-rated Buy, and I currently recommend it in several of my premium newsletters.
Another winner was Burlington Stores Inc. (BURL), an off-price apparel and accessories retailer. Burlington Stores had no problem attracting customers to its stores, so it increased earnings by 46% and net sales by 8.4% over last year. The company handily beat estimates, posting a 19% earnings surprise. Pleased with these results, management lifted its FY 2016 outlook. BURL is a B-rated Buy.
On the other hand, Chico’s FAS Inc. (CHS) wasn’t able to live up to expectations. The operator of Chico’s White House Black Market and Soma saw sales fall 8% and earnings decline 4%. Chico’s missed the consensus earnings estimate by 19% and the consensus sales estimate by 3.7%. According to management, weak traffic weighed on the company’s top line. Shares fell on the news, and unfortunately they likely won’t recover any time soon: I consider CHS a D-rated sell.
And if there’s one stock that I recommend you sell into strength, it would be Sears Holding (SHLD). Despite posting a $471 million loss for the first quarter, shares of the department store company rallied after it revealed that it may sell three of its major brands: Kenmore, Craftsman and DieHard. The company has been aggressively shutting down many of its Sears and K-Mart locations, and it is selling assets to raise cash. I consider SHLD an F-rated Strong Sell.
As you can see, some retailers are faring better than others in this challenging environment. As a result, it is always a good idea to check the fundamentals of any retail stocks that you’re looking to buy. To that end, feel free to use my Portfolio Grader stock rating tool as a starting point. In the meantime, I’ll continue to cover any promising new buys (and stocks to avoid) in this daily blog.