Specialty Retail: 3 Great Buys
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There's often value in retail entities that play to a very specific audience. These enterprises focus on targeted markets, not the broad retail market in all its general, one-size-fits-all mass-merchandising glory. Everyone desires general clothing items, a loaf of bread, and today, maybe even those omega-3 enriched eggs we hear so much about. Companies like Wal-Mart, Kroger, and others are doing quite well delivering what consumers want in this area.
However, not everyone needs a 3-Point Hitch Log Splitter, Reptile Supplies, or a bottle of Calon Segur, Saint Estephe 750ML 1996. Nevertheless, for that select market that does Tractor Supply Company (NASDAQ: TSCO), PetSmart (NASDAQ: PETM), and Sotheby's (NYSE: BID) are supplying these items respectively. Highly focused retail is something the highly focused investor may want to look at.
Tractor Supply Company is the largest operator of retail farm and ranch stores in the U.S. The Company has more than 1,151 stores in 45 states as at September 29, 2012. If you need farm tires, sprayer tanks, cotter pins, sheep and goat feed, power trimmers, air compressors, chisels, or an equine sweat scraper, among other products, Tractor Supply most likely has it at a rural location near you.
In October 2012, the Company announced financial results for their third fiscal quarter ended September 29, 2012. Net sales increased 9.0 percent to $1.07 billion from $977.8 million in last year’s third quarter. Same-store sales increased 2.9 percent compared to a robust 11.5 percent increase in the year-ago period. Net income for the quarter was $50.0 million, or $0.69 per diluted share. This is in comparison to net income of $42.7 million, or $0.58 per diluted share, in the third quarter of the prior year.
While same-store sales were not as impressive in growth as the previous period a year prior, Tractor Supply did open 17 new stores and closed one store in the third quarter of 2012. This is in comparison to 12 new store openings and one store closure in the year ago third quarter. A net of 27 additional stores is not bad. New store openings indicate a need and a demand for their specialty retail products. The Company has built a reputation on delivering what consumers want in this market segment.
Tractor Supply's customers include recreational farmers and ranchers, others who embrace the rural lifestyle, trades people, as well as small businesses. Going forward, new store openings should contribute to greater revenue growth and profits for Tractor Supply as they follow their tried and true business model
PetSmart has a thing for animals as well. They may not sell equine sweat scrapers, but they do sell reptile bowls and feeding accessories, chicken coops and accessories, cat and dog supplies, as well as live pets. The Company also offers animal training and behavior products.
In November 2012, PetSmart reported earnings of $0.75 per share, which is up 50 percent compared to $0.50 per share in the third quarter of 2011. Net income totaled $82 million in the third quarter of 2012, in comparison to $56 million in the third quarter of 2011. Total sales for the third quarter of 2012 increased 9 percent to $1.6 billion. Comparable store sales, or sales in stores open at least a year, grew 6.5 percent. Services sales (included in total sales) grew 8 percent to $175 million.
Economic volatility, a high rate of unemployment, gloom and doom in Europe, and the massive U.S. debt have consumers turning off the nightly news and taking refuge in comfort foods, and comforting pets that seem to settle and center everyone after a hard day at work or in the job search arena. A juicy hamburger, a cold beer, and men and women's best friends (a cat or dog) at one's side is sometimes all that's needed to take the edge off. PetSmart is in the right niche to take advantage of this sentiment and if economic conditions improve, people will still have a need for pet supplies and more. The Company's recent numbers indicate people are not abandoning pet ownership.
Of course, if you can afford it at $149.95, Sotheby's is more than willing to supply you their specialty retail offering of Calon Segur, Saint Estephe 750ML 1996, among a host of other wines from Sotheby's Wine. The Company's not only into real estate, they're also a retail wine merchant and auctioneer. They have their distinct store in the lobby of their headquarters building in New York City. They feature their retail wine website as well.
Sotheby’s Wine is a wholly owned subsidiary of Sotheby’s Inc. The Company combined their retail and auction wine businesses under the “Sotheby’s Wine” name in May of 2009. This is specialty retail of another sort, although if you can, replace that beer the odd time with a fine taste of the red or white grape for the desired same effect and internal ambiance.
Recently, Sotheby's announced that Sotheby’s Wine Auctions in 2012 brought an overall total of HK$503 million/ US$64.5 million. The year 2012 saw particularly strong results for New York auctions. These totaled HK$138 million / US$17.7 million. The London sales achieved a total of HK$154 million/ US$19.7 million. Hong Kong posted the highest total of the three sale locations with a result of HK$211 million / US$27 million. Sotheby's brand is highly respected and their wine business is capturing the attention of connoisseurs in this ever-trendy industry, which could bode well for the company in terms of sustained sales.
So it's part of personal due diligence as applies to an investment portfolio to consider specialty retail that may seem off your personal beaten path. These enterprises may not always be on your way to Wal-Mart, Kroger's, and such, (okay, PetSmart might be) but they're not too far away and they do offer an opportunity worth investigating.
MichaelONTARIO has no position in any stocks mentioned. The Motley Fool recommends PetSmart and Sotheby's. 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!