Can These Retail Winners Keep Winning?

After a great week of stock performance, what does the future mean for these retail winners and their shareholders? Can they keep soaring or do they have limited upside moving forward?

Mar 20, 2014 at 12:55PM

During the week of March 9, shares of a few retailers rose significantly to signal that while brick-and-mortar business may be on its way out, some companies are immune to this. Probably the most interesting winners over the past week included Williams-Sonoma (NYSE:WSM), Jos. A Bank Clothiers (NASDAQ:JOSB), and Rite Aid (NYSE:RAD).

A beautiful earnings release


Source: © BrokenSphere / Wikimedia Commons

For the quarter, Williams-Sonoma reported revenue of $1.47 billion. This represented a 4% increase from the $1.41 billion the business reported in the year-ago quarter, and it beat Mr. Market's forecast by 3%. Although it saw its retail revenue fall for the quarter, the business benefited from a 10.4% rise in comparable-brand revenue and an 11.5% jump in its direct-to-consumer sales.

Unfortunately, the company's rise in sales did not convert into a higher bottom line as net income remained virtually unchanged. However, management did engage in share buybacks over the past year that helped increase the company's earnings per share from $1.34 to $1.38. This surpassed the $1.35 per share that analysts anticipated by 2%.

Jos. A Bank makes its largest sale yet


Source: Wikimedia Commons

During the week, shares of Jos. A Bank, the second-largest publicly traded suit retailer in the world, climbed 5% because its rival Men's Wearhouse (NYSE:MW) agreed to acquire it at a $1.8 billion valuation. On a per share basis, this converts to $65 per share, 18% more than the $55 originally offered by Men's Wearhouse in November of last year.

After completing the transaction, Men's Wearhouse will become a 1,700-location business with $3.5 billion in pro forma revenue. Despite the fact that Jos. A Bank has had a poor history of increasing its profits over the past few years, its management successfully grew the company's top line by 36% from $770.3 million in 2009 to $1 billion in 2012. This exceeds the 30% jump in sales experienced by Men's Wearhouse, but note that the latter saw its net income soar 185% over the same time-frame.

Probably the biggest plus of the deal, according to Men's Wearhouse, will be the $100 million to $150 million in annual synergies expected from the transaction. Although the company may need three years to reach this amount and the savings are not guaranteed, this could result in attractive returns for the Foolish investor who decides to jump into shares of Men's Wearhouse.

Rite Aid keeps rocking it


Source: Wikimedia Commons

Another retailer that performed well during the week was Rite Aid, as its shares climbed 4% to close at $6.81. After Rite Aid reported sales data on March 6 that showed comparable-store sales growth of 1.5%, Goldman Sachs upgraded the company's shares from neutral to buy with a price target of $8.

Although it saw a prolonged period of net losses between 2010 and 2012 that totaled $1.4 billion, the business finally churned a profit of $118.1 million in 2013. Moving forward, it's hard to tell if Rite Aid can continue to stay profitable in the face of competitors like Walgreen and CVS Caremark, but its recent results suggest so.

Foolish takeaway
Based on the data provided, the Foolish investor is left with a few different prospects. From an earnings perspective, it's hard not to like Williams-Sonoma, but Rite Aid also seems to be on a favorable track for the investor who doesn't mind some extra volatility.

Jos. A Bank is also an interesting company, but because it's trading at a slight discount to its takeover price a better idea might be to grab hold of shares of Men's Wearhouse. 

Which one is the best of the best?
Although they have seen some amazing upside over the past week, additional moves upward will prove hard for these retailers. In spite of this, could one of these businesses turn out to be the best performer for 2014, or is there a better opportunity out there for the Foolish investor? The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark, Goldman Sachs, and Williams-Sonoma. 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.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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