Frugalista vs. Fashionista
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There's been a snarling catfight on the retail stock catwalk this year. High end retail and off-price discounters have been duking it out to win the fashion show beatdown and a place in investors' fickle hearts. Which stock has the honor of wearing the wedding dress at the end of the show?
Is High End Passe?
The latest debut on the fashion stage is Michael Kors Holdings (NYSE: KORS) which IPO'd in December at around $23.42 and doubled to $50.69 in mid-March now trading at $42.54. Michael Kors Holdings operates in three segments, retail, wholesale and licensing of its very fashionable and much-coveted men's and women's apparel, accessories, fragrance and footwear lines. It has a P/E of 54.69 and is headquartered in Hong Kong. A Hong Kong holding company holds a majority stake which makes sense as it has a strong presence in China, Japan and Macau.
The company, founded in 1981 by Michael Kors, star of reality fashion shows as well as iconic designer, wowed analysts at their February earnings call with a beat of 17 cents which catapulted the stock up 27%. The Valentine's Day lovefest pleased investors who bought at the IPO price. Analysts' upgrades praised their concept of 'affordable luxury'. Those who bought in after near $50.69 were dismayed by a March 20 announcement of a secondary offering by insider sellers after the 180 day lockup was waived in which the CEO John Idol and founder Michael Kors both sold large positions. The stock sank all the way to the mid-30's and has only recently recovered after a better than expected June 12 earnings announcement. Looking forward, analysts do see explosive growth in the number of store openings planned for the coming years.
Coach (NYSE: COH) is another high-end retail name that was flying high earlier this year. It ran from $60 in January to a high of $79.70 but has drifted back down to $57.74. Coach has a P/E of 17.25 and a yield of 2% and reports on July 30. It competes with the same merchandise as Michael Kors offering accessories, footwear, fragrance, men's and women's apparel.The stock still has a price target of $82.09 which leaves some nice upside and is doable since it was very close to that in April.
Coach is strongly represented in China and plans to open as many as ten new stores there by year end. Its mens' accessories line is also expanding and the company expects a doubling of the mens' revenues. The company, established in 1941 in New York, is still headquartered in New York City and for the last 16 years headed by CEO Lew Frankfort. Its distinctive designs, more immediately recognizable than those of Michael Kors, gives consumers the chance to flaunt a prosperity they aspire to and that has been translated all over the world to quarter after quarter of increasing EPS.
Looking at both I would rather carry a Coach portfolio, with its classical tradition and stable governance and yet growing in China with a yield and the lowest P/E of the stocks in this post than be holding a Michael Kors bag with no yield, a foreign majority stake and a monster high P/E. However, both may suffer on any bad news from China.
Are Discounters Still Fierce?
Strutting their stuff these last few years have been the off-price retailers, in particular, TJX Companies (NYSE: TJX), which operates TJ Maxx, Marshall's and HomeGoods stores. The stock is close to its 52 week high of $43.78 and has a P/E of 19.80 and a 1.10% yield. Analysts see TJX continue to profit from lower gas prices, a struggling consumer and more store openings.
What I like about TJX Holdings is they are the largest off-price retailer and consumers still looking to put a good face on it can find designer clothes that say I'm in the money (or at least I still have a job). Consumers who have friends over can buy decorative tchotchkes and more for their home at the HomeGoods stores since people are staycationing, cocooning and sprucing up rather than dining out and buying new homes.
Not to mention they have a strong presence as the major off-price retailer in Europe although some investors may find any Europe exposure a drawback. Their last earnings release on May 15 beat on EPS and revenues and raised full year guidance partly on expectations of luring a younger demographic with its aggressive "Maxxinista" ad campaigns.
Ross Stores (NASDAQ: ROST) has also been benefiting from lower oil prices and bargain hunting like its competitor TJX. It operates off price retail apparel and home fashion stores in the United States and has a P/E of 21.47. Ross Stores has doubled from $33.47 to a high of $69.46 this last year. It has a yield of .80%.
At its last earnings release it guided upward on plans to significantly increase its store count by 1300 more stores and to continue the share buyback program. Earnings increased 26% year over year and same store sales increased 9% for Q1.
So, which of these four retailers gets to wear the white wedding dress at the end of the fashion show? I like the odds on TJX because of its position in off price, its reasonable P/E , its dedication to growing its store count and while some may disagree I like its European exposure. Coach would run a very close second but like all high end retailers with China exposure any bad news from there will trip it up and that's no good on the catwalk. Frankly, it's so close it may well be a split decision on these two.
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