You may be concerned about buying retail stocks these days, and you're mostly right. Between the pandemic and the recession, there's not much room for a chain to survive these days. The migration to e-commerce is making life even harder for brick-and-mortar concepts.
Still, not every retailer belongs in your portfolio doghouse. Target (TGT 1.03%), Five Below (FIVE -1.12%), and Tanger Factory Outlet Centers (SKT -0.56%) are three chains that seem to be built for the new normal. Let's go over why they have what it takes to survive the retail apocalypse.
Image source: Target.
Target
If you're looking for a physical retailer that's killing it in the new normal, aim for the bullseye. Target was an early winner in the COVID-19 calamity because it was allowed to stay open as a provider of essential goods. Now that other department stores have opened, Target is still running at a higher level than its peers.
The cheap-chic retailer saw its revenue climb 25% in its latest quarter, with earnings per share skyrocketing 85% in the process. Target is still every inch a brick-and-mortar concept, but digital sales have nearly tripled over the past year. E-commerce delivery and online orders for in-store or curbside pickup are driving the shift.
The stock isn't cheap at 20 times next year's earnings, and the 1.7% yield isn't going to get your inner income investor drooling. However, Target is thriving in one of the worst operating climates for retailers and seems likely to keep weathering the storm.
Image source: Five Below.
Five Below
Five Below wasn't as lucky as Target this year. The trendy deep discounter had to close its stores during the early stages of the pandemic. Net sales plummeted 45% for the fiscal quarter ended on May 2, but by early June, most of its stores were back in business.
Many retailers sputtered over the summer, but not Five Below. The chain of big-box stores, which sells popular items priced at $5 or less, was able to do what most other previously shuttered concepts weren't: grow its top line. Net sales rose 2% for Five Below in its latest report. Wall Street pros were betting on a 3% revenue decline.
Expansion is a big part of Five Below's surprising year-over-year gain in net sales. There aren't too many chains with weak e-commerce games like Five Below moving in the right direction.
Image source: Tanger Factory Outlet Centers.
Tanger Factory Outlet Centers
One way to diminish risk in this environment is to bet on a basket instead of individual eggs, but who wants to buy a mall landlord? Tanger Factory Outlet Centers stands out as an operator of 38 outlet shopping centers -- where folks flock when they want deep discounts on brand-name goods.
Tanger has had some of its tenants go under, and that will likely continue to happen in this tough retail environment. However, it's been able to fill those vacancies, and its consolidated portfolio occupancy rate is now up to 93.7%. It's also been generating positive cash flow for a couple of months now, helping to pay off its unsecured lines of credit.
Shopper traffic levels are now just 89% of where they stood a year ago. Tenants that were hesitant to meet their rent obligations earlier in the pandemic are also now starting to pay up.
Tanger Factory Outlet Centers will more than hold its own during this recession. The pandemic tripped it up, but stores now have closeouts to sell and shoppers are flocking to Tanger to buy them.
