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There are a handful of savvy retailers that prepared for the tough economy by positioning themselves to profit - and now they're being rewarded with blockbuster earnings.
So far this earnings season, more than half of retailers have beat analysts' estimates for same-store sales, according to a Thomson Reuters survey.
These earnings season winners have streamlined inventories and catered to the consumers who are still spending - and the efforts have paid off. They're exceeding sales expectations, watching their stocks climb, and are expected to continue the streak in future quarters - meaning profit opportunities for investors.
Here are the companies coming out on top of the retail sector.
Discounters Deliver Profits
Discount retailers continue to profit from price-conscious consumers, and many chains saw a solid boost from a healthy back-to-school shopping season.
"Despite being buffeted by the winds of inflation, [Hurricane] Irene and unemployment, this back-to-school season was the best since 2006," Craig Johnson, president of retail consultant Customer Growth Partners, told Reuters.
One of the best performing discount retailers so far has been Family Dollar Stores Inc. (NYSE: FDO), which reported record sales and earnings for the fourth quarter and fiscal year ended Aug. 27. Net sales for the quarter were up 9.1% from the year before to $2.13 billion, with sales totaling $5.55 billion for the whole year.
At a time of weak consumer sentiment, Family Dollar saw comparable store sales increase 5.5% for the year. The retailer expects another 4% to 6% jump in the first quarter of fiscal year 2012.
Now it plans to open 500 stores and remodel 1,000 in 2012.
"I think the most important thing is that the remodeled stores are positioned much better to provide customer service and it's a much more compelling place to shop," said Family Dollar Chief Financial Officer Kenneth T. Smith. "That's evidenced by not only the customer surveys that we received, but also the fact that they're buying more. This program is positioning us nicely with our customer, and we feel great about it as indicated by our decision to continue the very aggressive pace of the program."
The bright outlook prompted analyst Dan Wewer of Raymond James & Associates last week to raise the stock's rating to "Strong Buy" from "Outperform." Family Dollar stock is up more than 8.5% for the year.
Upcoming earnings to look out for in the discount-retailing sector include big-name competitors Target Corp. (NYSE: TGT) and Wal-Mart Stores Inc. (NYSE: WMT). Both are expected to report higher sales.
Wal-Mart executives said Wednesday at the company's annual meeting that the discount giant was ready to end its streak of declining sales. After nine straight quarters of lower sales at U.S. stores open at least a year, Wal-Mart is expected to report an increase when it releases earnings next month.
Wal-Mart has some catching up to do because while it was struggling to reach positive sales numbers, chief competitor Target forged ahead.
Target has started to focus on consumable items as a strategy to generate more same-store sales and it's paying off.
Since hitting a 52-week low of $45.28 in June, Target has climbed more than 16% to close Thursday at $52.69. Target's September sales were up 6.5% from last year, boosting sales so far this quarter up 6% year-over-year.
"Target's got a better shopping experience, they understand their consumers better, and I think it's a clean place to go," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "They're not even getting started in international sales so they've still got that opened to them as well."
Target will release earnings Nov. 14 after its third quarter ends Oct. 31.
Also expect Dollar General Corp. (NYSE: DG) to beat analyst expectations when it announces third-quarter earnings at the end of November. The discount chain on Aug. 30 reported record second-quarter sales and earnings, and its stock since then has gained 8%. It's up 25% year-to-date. Sales were up 11.2% from the prior year, and adjusted net income rose 25%. The company expects total sales to rise 12% to 14% for its fiscal year 2011 ending Feb. 3, 2012.
On the other end of the retail spectrum, high-end companies are appealing to wealthier consumers who continue to spend more, despite fears of a double-dip recession.
"We've been seeing in these more challenging times that the high-end retailers have been doing very well because those who can afford it are opening their purses," Steve Riordan, global managing director for PRGX Global Inc, told MarketWatch.
Burberry Group PLC reported a 44% increase in retail sales for its fiscal first half. The result was a 30% jump in revenue, which came to $1.3 billion (830 million pounds).
And Coach Inc. (NYSE: COH) in August reported a 10.6% jump in same-store sales of for the 2011 fiscal year.
High-end retailer earnings to watch for this quarter include Tiffany & Co. (NYSE: TIF), reporting Nov. 29. The luxury brand's second-quarter revenue was 24% higher year-over-year, same-store sales rose 22% and earnings climbed 33%. The company adjusted earnings per share to 86 cents, 20% higher than analysts expected.
Tiffany's stock is up about 11% since its last earnings release. Analysts' average 12-month price target is currently $83.44, an 18.25% premium to Thursday's $70.26 closing price.
Also, look for men's clothing manufacturer Jos. A Bank Clothiers Inc. (NASDAQ: JOSB) when it announces third-quarter earnings Nov. 28. The company's profits rose 25% in the second quarter and its stock is up 21.5% for the year.
The company has consistently raised sales and revenue by appealing to consumers with amazing deals like "buy one, get two free" promotions and 70% discounts. The initiatives have helped sales grow 20% annually the past few years and allowed the company to open 110 U.S. stores since 2008.
News and Related Story Links:
- Money Morning:
Luxury Brands Are Back In Style as America's Wealthy Return to Their Wears
Retailers ring up solid September, holidays loom
Retailers show resilience despite tough times
Analyst lifts Family Dollar Stores rating
- The Wall Street Journal:
Wal-Mart Looks on Course to End Sales Slump
- Bloomberg News:
Retail Sales Probably Rose in September