The retail sector had a roller coaster ride in 2014. Most of the retailers got off to a weak start in 2014 due to a harsh winter which resulted in store shutdowns and disrupted shopping.
Though weather conditions and the job scenario improved in the second quarter, the overall economic environment remained sluggish due to lower consumer demand. The heavily promotional environment forced big brick-and-mortar retailers to offer discounts to stay relevant even as they dealt with the growing shift to online sales.
A volatile retail sales environment and lower consumer confidence adversely impacted traffic at retailers like Kohl's Corporation (NYSE:KSS), Macy's Inc (NYSE:M), GameStop Corp (NYSE:GME) and Myers Industries Inc (NYSE:MYE) in 2014.
However, the challenges for Wal-Mart Stores Inc (NYSE:WMT) were far more than seasonal. Weak comparable store sales for more than a year shattered Wal-Mart inside out. After six weak quarters in a row, Wal-Mart’s third quarter fiscal 2015 earnings came in line with estimates, while revenues were better than expected. However, the company again disappointed its investors by narrowing its earnings guidance for fiscal 2015.
The weak guidance reflected higher investments in e-commerce and higher U.S. health care costs, apart from incremental investments in Sam’s Club and volatile tax rates. Not only this, but also currency headwinds, cuts in food stamps, pressure to increase minimum wages, and sluggish economic environment are expected to hurt the top line in the upcoming quarters. (Read: Wal-Mart's Q3 Earnings In Line, Sales Beat; View Narrowed)
Also, in order to compete with online retailers like Amazon.com Inc (NASDAQ:AMZN), the company has been making huge investments in the e-commerce business. This in turn will hurt profit margin in the upcoming quarters owing to shipping costs and price competition involved in it.
However, there were retailers which managed to beat expectations and outperform Wal-Mart in each sense in spite of a slowdown in China, turmoil in Russia, sluggishness in Japan and a struggling Europe.
3 Retail Stocks Which Performed Better Than Wal-Mart
Here, we have identified 3 stocks with an impressive Zacks Rank, positive Earnings ESP and long-term EPS growth rate of above 9%. These have posted impressive results in the past one year and have potential to outperform in 2015.
Shoe Carnival (LONDON:CCL), Inc. is a value-oriented retailer of family footwear. This Zacks Rank #1 (Strong Buy) company posted solid earnings in the third quarter of fiscal 2014 last month and also provided an impressive guidance for the full year. The company also expects positive year-over-year earnings growth for the fourth quarter.
The Zacks Consensus Estimate for the fourth quarter also reflects an increase of 200% year over year. This Indiana-based stock has an Earnings ESP of +11.11% and is expected to report fourth quarter results on Mar 19.
Shoe Carnival currently trades at a forward P/E (price-to-earnings) multiple of 20.29x, lower than the peer average of 20.92x and has a long-term earnings growth rate of 12%.
CVS Health Corp (NYSE:CVS), a Zacks Rank #2 (Buy) stock, has an Earnings ESP of +0.83% and is expected to report its fourth quarter 2014 results on Feb 10. The Zacks Consensus Estimate for fourth-quarter 2014 indicates an increase of 7.6% year over year.
This Woonsocket, RI-based provider of integrated pharmacy health care services in the U.S. has succeeded in delivering superior health care services to people and registered an average positive earnings surprise of 0.4% over the trailing last four quarters. The company has a long-term earnings growth rate of 13.8%.
Pittsburgh, PA-based American Eagle Outfitters Inc (NYSE:AEO) is a specialty retailer of clothing, accessories, and personal care products. The company posted record third quarter fiscal 2014 results in Dec 2014 on higher margins attributable to the company’s cost reduction initiatives.
In addition, very recently, the company raised its earnings guidance for the fourth quarter of 2014, scheduled to be reported on Mar 10, owing to solid holiday sales. The Zacks Consensus Estimate for the fourth quarter fiscal 2014 indicates an increase of 18.5% year over year.
American Eagle Outfitters has a Zacks Rank #3 (Hold) and an Earnings ESP of +3.13%. The company registered an average positive earnings surprise of 1.9% over the trailing last four quarters, and has a long-term earnings growth rate of 9.30%. Though the stock looks a bit pricey with a forward P/E (price-to-earnings) multiple of 24.93x, higher than the peer average of 17.29x, this should not bother investors given the company’s strong fundamentals.
Our Take
2014 is gone and the year 2015 looks promising for retailers as they see gradual recovery in the housing market, a strengthening manufacturing sector, an improving labor market and falling gasoline prices. We believe this would help the retail stocks take center stage.