The retailing road to riches has a number of paths; if you had stuck with department store chains over the past year, you'd have chosen wisely.
My original thought was that department store retailer Kohl's (NYSE: KSS ) had outperformed its peers over the past year in terms of stock performance. I mean, last quarter was probably the best in the company's history, and last evening it posted a stellar 32% jump in full-year 2006 earnings, as sales grew 16% and same-store sales advanced a nice 5.9%.
Surprisingly, when I pulled up a stock chart comparing Kohl's with archrival J.C. Penney (NYSE: JCP ) , Dillard's (NYSE: DDS ) , and upscale chain Nordstrom (NYSE: JWN ) , I found that all have gained between 30%-40% over the past year, with Federated (NYSE: FD ) not too far behind, up about 25%.
In contrast, giant retailers such as Target (NYSE: TGT ) and Wal-Mart have seen stock gains closer to 10%. That's still respectable, but not too long ago investors could count on the big-box bullies to inflict pain on the primarily mall-based department stores, as consumers flocked to more convenient strip-mall locations for everyday low prices.
Again, I figured Kohl's was at the sweet spot of retailing, as it also focuses on opening off-mall locations and sells affordable, well-known brands. That is definitely the case, but the more storied chains -- such as Penney's, Dillard's and Federated's Macy's -- have also figured out how to play the game and grow market share again.
J.C. Penney has improved its merchandise mix and is also growing outside of malls, and Federated has used acquisitive growth to leverage costs and take excess capacity out of the industry. Kohl's and Penney's have found that private-label merchandise can be popular with customers and more profitable, as they don't have to pay up for outside brands such as Levi's or Polo by Ralph Lauren (NYSE: RL ) .
In other words, the value plays have worked, as the older guys have restructured their way into sales and earnings growth. Additionally, growth firms like Kohl's and Nordstrom have combined wide-open expansion opportunities with better inventory controls and fashionable apparel offerings that are selling well. Even Target has kept pace, with the laggard being neighborhood bully Wal-Mart. As a contrarian, I'm starting to sniff around Wal-Mart more, but the competition is also worth keeping tabs on.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to further discuss any companies mentioned. The Fool has an ironclad disclosure policy.
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