A Holly Jolly One-Percenter Holiday
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It's all too tempting to write a Capraesque spoof of what Montgomery Burns,"The Simpsons" tycoon would think is an "excellent" (rub hands slowly and greedily together) present for this holiday season. If Thurston Howell III was off Gilligan's Island one wonders what he would buy for his wife, Lovey.
According to a joint American Express Publishing and Harrison Group report released on October 17 holiday gifting purchases by the one percenters will rise by more than a third this year. So, what will Montgomery Burns' long suffering assistant, Waylon Smithers, and Lovey Howell III be getting this year? ( I highly suspect Mr. Burns is a regifter and that Smithers has been rewrapping the same present to himself year after year.) It seems that recipients want specialty retail gift cards rather than someone else picking out clothing or jewelry for them. And if they don't get it, the wealthiest will just buy what they want for themselves according to the report. But didn't they always do that?
Who should benefit from this rise in one percenter holiday largesse? Three names comes to mind: Saks Incorporated (NYSE: SKS), Nordstrom (NYSE: JWN), and Michael Kors Holdings (NYSE: KORS) .
Saks has a 22.84 P/E and has been struggling these last few years. With a 1.61 billion market cap it operates 45 Saks Fifth Avenue Stores and 64 Off5th stores as well as their ecommerce site and catalogs. Saks is up 7.08% over 52 weeks lagging the S&P 500 and has an astounding 30.40% short interest and a 2.65 debt/cash ratio. While Thurston Howell III might buy Lovey a Saks gift, he surely wouldn't buy the stock, likely muttering in that Northeast prep jockjaw accent, "Noone can pull the wool over my eyes. Cashmere maybe, but wool never!"
Largest Saks stockholder Carlos Slim, under the name Carso Inmobiliana SA DE C, went on a major selling spree from August 19 through 30 selling 3,394,300 shares between $11.60-$11.91 a share. As of August 30 he still owned 23,125,000 million shares closely followed by Diego Della Valle, the founder and CEO of Tod's SpA, maker of fine Italian shoes and accessories, with 22,650,000 shares. And the third largest owner is an institution, Southeastern Asset Management with 18,703,500 shares.
Return on assets for Saks is only 4.51% and like many retailers the profit margin is slim, 2.43% but this is cutting it very close to the bone. Saks has had to close some underperforming stores, too, in affluent Highland Park, Michigan and Austin, Texas. Saks reports again on November 13.
Nordstrom on the other hand has been opening more stores, 16 this year with 24 more planned for 2013, mostly Nordstrom Rack stores, their outlet venues. The company already has 237 stores. Nordstrom also pays a yield of 1.90% with a 32% payout ratio. The stores are well known for extraordinary customer service and customer pampering, something that Lovey loves. Their P/E is better, too, at 18.04 something that Thurston would appreciate.
Motley Fool's Sean Williams just named his CEO of the Week and drumroll please, it's CEO Blake W. Nordstrom. He owns almost 2 million shares and other Nordstrom family members own an additional 15-16 million shares. Nordstrom has a better net margin at 5.87% with operating margin at 10.73%. And it has certainly outperformed Saks as its stock is up 14% over 52 weeks and way up from its low of $44.22 on last Black Friday when the stock itself was on sale.
Nordstrom operates in two segments, Retail and Credit, with credit comprising a private brand Nordstrom credit card, two different Nordstrom Visa cards and a debit card linked to shopper loyalty programs. The return on assets is 9.55% and the short interest at 2.90% has been decreasing. Nordstrom reports on November 8.
Then there's Michael Kors, maybe a little too glitzy for Lovey or Waylon Smithers, although he might like their men's accessories. The styles are more suitable for nouveau money, maybe for a trophy wife for Thurston as he goes on to wife #2 once he's off the island. Michael Kors has been on a huge run since its IPO last December with more than a 100% return but still has a 57.45 P/E with a forward P/E of 30.36. It touched a 52 week high of $57.92 intraday on October 18 despite a downgrade of luxury markets by Bain & Co. on October 15 basing their report on a European luxury downturn. However, their report did mention that leather goods, (think shoes, purses, man purses, and wallets) were still popular luxury purchases and that bodes well for Michael Kors. The Hong Kong based company operates 203 retail stores, with 34 international stores included. The company also benefits from licensing of the Michael Kors name on fragrances, eyewear, watches, and more. The apparel, both men's and women's is stylish and luxe, a tad too fashion forward, for a classic lady like Lovey but not tacky by any means. The profit margin is 13.07% and the quarterly earnings growth is an amazing 184.70% and quarterly revenue growth is 70.60%.
The company has been blowing away analyst expectations time and time again and only really suffered last spring after the founder Michael Kors and CEO John Idol sold large stakes of shares during one of the early lockup expirations. Short interest had been high but has decreased to 3.60% especially after several earnings releases catalyzed big short squeezes. Michael Kors is certainly a fashion retail star but it's probably prudent to wait after earnings. Michael Kors reports again on November 13.
What's an "Excellent" Buy Now?
I think we can be sure that our three tycoons wouldn't want to buy Saks and they might consider a Michael Kors as untested but they would surely approve of a buy in Nordstrom with its yield and outstanding CEO. "Yes, Lovey, have Gilligan ring up our broker and buy me some Nordstrom." You can probably hear that Harvard rasp in your head or the nasal Smithers, our favorite cartoon toady," Yes, Mr. Burns, I'll purchase that Nordstrom stock right away, sir. " I hope you get everything you want for the holidays and if not, buy it for yourself in the spirit of a holly, jolly one-percenter holiday.
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