1 Buy, 1 Sell, and 1 Hold in Fashion Retail

By Tyler Crowe - August 28, 2012 | Tickers: GPS, JCP, ROST, URBN | 0 Comments

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There has been a lot of movement in the fashion retail space as of late. Some young up and comers are making a name for themselves, some discounters are bringing in big profits, and some classic icons of American retail are limping along.  Here is a quick rundown of companies in the retail space and how they rate as a buy, sell, or hold.

Buy: Ross Stores (NASDAQ: ROST)

There is a debate between Ross Stores, The Gap (NYSE: GPS) and TJX (NYSE: TJX).  There is a legitmate reason why almost any one of these comanies could take the highestposition.  Here is a quick look at the numbers

Source: Yahoo! Finance and company earnings reports

While these quarterly numbers appear to give the Gap an edge in terms of growth, I’m still giving a nod to Ross Stores because they have been putting numbers like this up much more consistently over the past several quarters.  If The Gap can put those kind of numbers together for a couple of quarters in a row, I will certainly change my mind.

Both Ross and TJX (the parent company of sotes such as TJ Maxx and Mashalls) are proving that the discount model is a very lucrative one.  It appears that while consumers are starting to get their groove back, they are doing so apprehensively and are looking to still get the most bang for their buck.

I am taking Ross over TJX because 1.) They are pulling down a higher profit margin, 2.) While their same store numbers are identical, Ross is also significantly expanding its store base.  This should translate into a more promising future.

Sell: J.C. Penney (NYSE: JCP)

I am not the first to pile onto J.C. Penney’s woes as of late, but their numbers right now are just not encouraging.  Just for comparison's sake, let’s compare them to the previous winner in the buy category: Ross.

 You are probably asking yourself this questoin; how is J.C. Penney holding a similar P/E ratio to Ross? They are posting dismal profit numbers, their customer base is shrinking, and they have suspended their dividend.  This just simply does not add up.  An explanation could be is that they are sitting on a large amount of underrepresented real estate.  While the sale of these assets could provide a couple pads to the balance sheet as one time fixes, I have my doubts as they will still need to turn their business model around.

Hold: Urban Outfitters (NASDAQ: URBN)  

Granted, this company is coming back after a few bumps in the road, they are just coming off a record 2nd quarter in terms of revenue, and they sport a pretty healthy profit margin at 7.1%. I am a little apprehensive, though, about their earnings growth, which took a big u-turn in their last 10-Q report.  They had a big jump in their cost of goods sold and SG&A expenses.  I'm not quite sure what to make of those numbers, but I would like to see the next 10-Q before I make my move.

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