Three Great Retail Companies

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

The retail industry has had its ups and downs over the last few quarters. The winter sales weren't as high as expected and cooler weather in the spring stunted sales growth.

Now that things are heating up, here are three retail companies to watch.

A softer First Quarter for Ann

Ann (NYSE: ANN) reported its first quarter earnings on June 6th - later than many other retail companies. The company operates stores under two brand names - Ann Taylor and LOFT, the latter a discount store. It has nearly 1,000 stores across the country. Total earnings per share dropped 30%, largely due to the colder weather in the first few months of the year. 

Total earnings for the company were $574.5 million, lower than the anticipated $580.5 million. Earnings Per Share (EPS) for the quarter were $.44, $.02 higher than expected. 

The important thing to note on this company's performance is that the decline in earnings was not due to the company's actions. It was just bad weather. For the last 2 years, 6 quarters have seen strong growth in earnings per share year over year. Revenue has grown each quarter for the last 3 years, including the most recent quarter. 

As retail spending continues to grow, Ann's performance will continue to increase. This year the company expects a growth of 5% in earnings per share as consumer spending grows. The company has also focused on growing its brand at the LOFT stores and increased online sales. 

The first quarter just represented bad weather, not a bad a business. Its Ann Taylor stores did see a 6.2% rise in same store sales. Its LOFT stores didn't see the same growth, though. The reason LOFT didn't see sales growth is because it started pushing warmer weather clothes in its advertising during the end of the winter. The inability to predict weather patterns isn't a weakness in this case. 

During the first quarter, the company has done a number of things to help spur growth. It is giving its stores a facelift and offering new products in an easier layout for customers. It is doing this without taking on any debt. In fact, Ann is a company with no debt on its balance sheet - a rare and impressive feat. Plus, the company started shipping to more international customers. It now serves 100 different countries.

The next quarter should bring 7% more in revenue than Q2 last year and 10% more than Q1. More money is about to come through the door, so consider this for a buy.

An electronics company with huge gains

Conn's (NASDAQ: CONN) is a specialty retailer of electronics and furniture that operates predominantly in the South. It has just 70 stores but don't let its small stature fool you. This company has been making huge headway. 

The company posted its first quarter results on June 6. Two things stood out for this company: earnings and revenue. Revenue growth was 24.8% year over year for the first quarter. Earnings per share beat estimates by $.05 and grew by 74%. 

Conn's has a major portion of its operations in Texas. Because the Texas economy has continue to grow at strong rates, Conn's has directly benefitted from business and personal purchases at its stores. Roughly 50% of all of Conn's revenue for the first quarter came from home appliances and furniture, which are the highest margin items the company sells. Home office and office products accounted for just 7% of total revenue, but it grew by over 40% from the same time last year. 

Having a strong presence in a growing and healthy economy has helped Conn's. Investors should keep an eye on Conn's as it is likely to continue this growth throughout the next year. Texas has been attracting more businesses and with this growth in business will come a growth in spending. 

The key with Conn's is same stores sales growth. For this last quarter, same store sales growth was 14.2%. This is an impressive number. What is more impressive is that this growth rate grew from 9% same time last year. 

Sales are expected to continue to grow this year. The company has a commission-based sales staff that are incentivized to sell. Also, it offers in-store financing for most of its items. The focus on higher margin items like furniture will fuel earnings growth. The next quarter is expected to increase by nearly 60% with regards to earnings per share. Full year 2014 will likely bring $2.50 per share in earnings, a strong growth over 2013's $1.63.

A popular retail chain with even more growth

Gap (NYSE: GPS) experienced strong same store growth this past month. Like many retail companies, the colder spring caused a dip in sales. As the spring weather warmed, retail spending increased. 

Gap saw same store sales growth of 7% for the month of May - twice the industry average of 3.5%. This growth is expected throughout the year as the company focuses on new clothing offering and increasing its marketing and branding. 

With Lululemon's Athletica recent debacle with see-through yoga pants, Gap stands a chance to profit. The company is expanding its Athleta brand of athletic clothing. It offers the popular yoga-wear for women but at lower prices than Lululemon. Gap is launching new stores this year for Athleta, which will likely aid in the expected EPS growth rate of 15%. 

Investors should be very happy with the same store sales growth at Gap and look forward to even more growth this year. 

Analysts are expecting EPS of $2.70 this year. The company will easily hit this earnings number. It has emphasized its branding around the Gap line while expanding its other products. This has helped get more companies back in the stores. 

The stock has hit new highs recently, so it may be a bit overpriced. At $42 per share, the stock may have taken the majority of its upside for the short term. Keep an eye on the price as there is still some potential. 

Final thoughts

The retail industry had a rough few months earlier this year. But as temperatures are rising, Gap and Ann Inc. are seeing strong growth. Investors should watch these two companies this year. Conn's has been benefiting from a strong economy in the south. These three companies are definitely worth considering for your portfolio. My top pick of these is Conn's. It is on the upswing from a lot of strong growth in the last year. With its geographic advantage and profitable product mix, this year should be another great year for the company and its investors. 

Austin Higgins 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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