2 Bright Retailers in a Dull Industry

Given the weak retail environment, the growth of these two companies might lead to their continued stock gains.

Feb 19, 2014 at 9:05AM


Since 2011 the year-over-year growth for retail sales have declined consistently.

U.S. retail sales have undoubtedly been under pressure in recent months, in part due to weather but also widespread heavy discounting. Yet, despite proof that year-over-year increases in retail sales have declined since 2011 (as shown in the chart above), along with January retail sales that declined 0.4%, two retailers continue to shine. Under Armour (NYSE:UA) and Michael Kors Holdings (NYSE:KORS) are two very different retail companies that might provide investors with a bit of brightness in a dull industry. 

Under Armour: Creating separation
Under Armour's fourth-quarter earnings are known by most who follow retail, mostly because the company crushed expectations in a period when many expected weakness. 

In its last quarter, Under Armour saw an acceleration of revenue growth to 35% year over year from a 26% increase in the quarter prior. Furthermore, the fourth quarter marked the third consecutive period in which Under Armour's year-over-year growth accelerated, which tells us the company's brand is really gaining momentum and that a weak industry can't slow down this juggernaut.

With that said, investors in the sports-retail segment had been placing their bets on either Under Armour or lululemon athletica (NASDAQ:LULU); the latter makes sports apparel for women, specifically yoga apparel. Yet the chart below shall give investors a good idea of how both companies have weathered the retail storm in recent months.


Under Armour data by YCharts.

After a five-year period of near equal growth, and trading with similar gains, Under Armour's stock has broken away, reigning superior over Lululemon. 

The fact that Lululemon's total growth has decelerated to 20% from more than 30% in the year prior and that Under Armour's has accelerated further amplifies the incredible performance of this company.

Not to mention, for those of you focused on profitability, Under Armour's gross margin rose 100 basis points to 51.3% in its last quarter, yet another testament to this company's vast improvements. Thus, such improvements more than warrant a premium valuation multiple. 

Michael Kors: Nothing can slow it down
Michael Kors is another great retailer; not a sports retailer but rather luxury.

In the company's last quarter it reported total sales growth of 57% year over year. While this is impressive by itself, what's really mind-boggling is that Kors grew its comparable-store sales by 28%. This means that more consumers were buying its products at existing locations and that Michael Kors was not affected by a retail market that was plagued by aggressive discounting. 

Coach (NYSE:COH), which is Michael Kors' biggest competitor, saw its comparable-store sales decline 13.6% in North America during the holiday season. This shows the demand present for luxury handbags in the quarter but also the market share that Michael Kors is stealing on a quarterly basis.

Furthermore, on Coach's conference call the company said that rivals such as Kors had taken market share during the holiday season. And while Coach discounted its products to attract consumers, Kors did not, which, coupled with the sales figures during the period, is very telling. 

Overall, Kors is a luxury retailer that is not struggling in any facet of its business -- the company's industry-leading gross margin even increased 100 additional basis points to 61% in its last quarter -- meaning that it, like Under Armour, is deserving of a premium multiple. 

Final thoughts
Conveniently, Under Armour and Michael Kors have both seen their stocks rise 22% in 2014; while both could likely continue to soar throughout the year, a fundamental assessment might suggest which has the most upside.

With that said, both companies are highly profitable and are leaders within each industry. Yet two metrics that really stand out include the fact that Kors is growing faster on a year-over-year basis and trades at just 26 times forward earnings versus 45 for Under Armour.

Therefore, despite both being solid companies with top industry performance, Michael Kors has the least amount of downside risk and could still soar considerably higher due to being cheaper.

Retire in the lap of luxury?
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.


Brian Nichols owns Michael Kors. The Motley Fool recommends Coach, Lululemon Athletica, Michael Kors Holdings, and Under Armour. The Motley Fool owns shares of Coach, Michael Kors Holdings, and Under Armour. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers