Burlington Stores & 4 Other Retail Picks for a Solid Portfolio
In an ever-evolving retail landscape, Burlington Stores, Inc. BURL has made multiple changes to its business model to stay relevant. It has emerged as an investor favorite, courtesy of sound fundamentals and growth efforts. The company, which started business as a coat-focused off-price retailer, is focusing on an “open to buy” off-price model. The current model is helping customers to get nationally branded, fashionable, high quality and rightly priced products.
The company is concentrating on underpenetrated categories, particularly home, beauty and gifts, in order to make the business less weather sensitive. Moreover, it is gradually expanding its store fleet. The company intends to improve operating margin and lower the gap of the same compared with its peers by augmenting sales, optimizing markdowns and effectively managing inventory.
The company has steadily increased vendor count, made technological advancements, improved its marketing approach and focused on localized assortments. All these endeavors have helped the company to post decent comparable sales, and, in turn, fueled its top-line performance.
We note that comparable store sales rose 3.8% in second-quarter fiscal 2019 compared with increase of 2.9% in the year-ago period and 0.1% in the preceding quarter. This was the 26th successive quarter of comparable store sales growth. Management now expects comparable store sales to improve 2-3% in the third quarter and 2-2.5% in fiscal 2019.
The company has been doing quite well on the revenue front. In the second quarter of fiscal 2019, the top line grew 10.5%, following an increase of 7.3% in the preceding quarter. Management now expects total sales to improve 8.5-9.5% in the third quarter and 8.8-9.3% in fiscal 2019.
Buoyed by the above-mentioned factors, shares of this NJ-based company have advanced 21.3% so far in the year. This Zacks Rank #2 (Buy) stock has also comfortably outperformed the Retail-Wholesale sector and the S&P 500 Index that gained 16.6% and 16%, respectively, in the said period.
Why the Retail Sector?
A buoyant consumer environment, given a favorable job scenario, and a steady rise in disposable income are working in favor of retailers. For sure, retailers are making prudent investment decisions, focusing on cost containment, enhancing omni-channel capacities, introducing brands, refurbishing stores and expanding same-day delivery options.
Undoubtedly, the sector’s prospects are closely tied to the purchasing power of consumers. Well consumers remain in good shape as of now, courtesy of a solid job market as evident from the 50-year low unemployment rate of 3.5% in September. Further, the economy added a modest 136,000 jobs last month. Moreover, the data for the month of August was revised up to 168,000 from the previously reported 130,000 jobs created. We believe that a sturdy labor market is likely to encourage consumer spending.
4 Prominent Picks
Sonic Automotive, Inc. SAH, an automotive retailer, is an attractive option. The stock has a VGM Score of A and a long-term earnings growth rate of 3%. This Zacks Rank #1 (Strong Buy) company delivered average positive earnings surprise of 29.5% in the trailing four quarters. Moreover, the Zacks Consensus Estimate for its current-year earnings indicates year-over-year improvement of 32.2%. We note that the stock has more than doubled year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zumiez Inc. ZUMZ, which operates as a specialty retailer of apparel, footwear, accessories, and hardgoods, is a solid bet with a long-term earnings growth rate of 12%. This Zacks Rank #1 company has an average positive earnings surprise of 60.9% in the trailing four quarters. Moreover, the Zacks Consensus Estimate for its current-year earnings suggests year-over-year improvement of 20.7%. The stock with a VGM Score of A has advanced 59.1% so far this year.
Investors can also count on Target Corporation TGT, which offers beauty and household essentials, food assortments, apparel and home decor products. This Zacks Rank #2 company has a long-term earnings growth rate of 7.1% and a VGM Score of A. It has soared 67.3% so far in 2019. Moreover, the company has an average positive earnings surprise of 4.6% for the trailing four quarters. Further, the Zacks Consensus Estimate for its current-year earnings suggests year-over-year improvement of 14.1%.
You can also consider Walmart Inc. WMT, an operator of supercenters, supermarkets, hypermarkets and warehouse clubs, with a Zacks Rank #2 (Buy) and a VGM Score of B. The company has an average positive earnings surprise of 6.7% in the trailing four quarters. Moreover, the Zacks Consensus Estimate for its current-year earnings suggests improvement of a penny on a year-over-year basis. We note that the stock with long-term earnings growth rate of 4.7% has rallied 28.4% year to date.
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