Which Retail Stock Is Right for Your Portfolio?

Ben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Following the hoopla over Black Friday and the rest of the holiday shopping zaniness, retail stores must refocus and adapt to the end of the busiest shopping time of the year. I want to take a look back at the year that was 2012 for three brand name retail companies and what their prospects look like moving forward.

Urban Outfitters (NASDAQ: URBN)

Shares of Urban Outfitters were up 42% this past year as this lifestyle specialty retail store increased sales for the 4th quarter in all four of its divisions. This is great news for Urban Outfitters and on top of that same store sales have increased and posted two straight quarters of double digit earnings growth. Looking ahead, analysts have this company increasing earnings by almost 40% for the next year.

Gap (NYSE: GPS)

Gap's domestic same store sales for the most recent quarter were 6%, handily beating the analysts’ estimates of 4.5%. Firming up their Old Navy division was a big reason for this sales improvement. They experienced a decline in international same store sales of 6% for the second straight year. But their pending acquisition of boutique luxury retailer Intermix bodes well for future sales by providing an entry into the luxury market. This acquisition is not currently reflected in Gap's stock price. However several analysts expect earnings to grow close to 50% for the coming year, which should ultimately have a positive impact on the stock price.

Abercrombie & Fitch (NYSE: ANF)

Unlike the other two companies Abercrombie & Fitch did not have a banner year as the stock only gained 4% to date. This specialty retailer which focuses on casual apparel for men, women and kids has the lowest return on equity and return on assets of the three retailers. This indicates inefficient management. Be that as it may I see a light at the end of the tunnel and most analysts tend to agree as they estimate growth earnings for the coming year at approximately 29%.

The Numbers

  URBN GPS ANF
Qtrly Rev. Growth (yoy) 0.14 0.09 .08
ROA 13.79% 11.86% 5.94%
ROE 34.43% 16.84% 6.10%
P/E 30.69 15.64 36.90
P/B 4.69 4.74 2.27


1 Year Stock Performance

 

My Foolish Take

Based on the valuation metrics, it is clear that Urban Outfitters is effectively managing their stores much more efficiently then Gap and Abercrombie. They also have the highest revenue growth of the three. But last years returns clearly show that Gap outperformed Abercrombie and Urban Outfitters by a significant amount. Further Gap is more diversified, has a larger market share and an inexpensive valuation. If I was looking to add a retail stock to my portfolio, the Gap would be my first choice.


gomonkies23 has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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