The holiday season is here, and that means plenty of bargains await holiday shoppers in stores. But your local mall isn't the only place to find a deal. Savvy investors know that stocks are on sale as well.
With the S&P 500 down 16%, there are plenty of attractive names on sale right now. Let's take a look at three retail stocks that are selling for cheap this holiday season.
1. Williams-Sonoma: A misunderstood profit machine
Williams-Sonoma (WSM +0.45%) may be best-known as the maker of high-end home goods and kitchenware, but the company also owns Pottery Barn and West Elm. In fact, both of those brands bring in more revenue than the Williams-Sonoma brand.
Like other home-goods retailers, Williams-Sonoma's business soared during the pandemic as remote work and COVID-19 lockdowns drove increased spending on the home. Unlike its peers, the company has continued to deliver strong results, even as the economy has reopened and consumer spending has shifted elsewhere.
NYSE: WSM
Key Data Points
Comparable sales rose 8.1% in the company's third quarter, helping to drive a 50% increase over the last three years. That's a staggering surge for a seemingly mature retailer. Williams-Sonoma is also highly profitable with an operating margin of 15.5% in the third quarter and a target of 17.6% for the full year. This is a sign of the company's pricing power and ability to control costs through its vertically integrated business model.
Thanks, in part, to the company's aggressive share-buyback program, which has reduced shares outstanding by 11% over the last year, earnings per share rose 13% to $3.72.
Despite that rock-solid performance in the third quarter, the stock actually fell on the report, as management stepped back from its goal of hitting $10 billion in annual revenue in 2024, due to the likelihood of a recession. Still, the company reasserted its ability to take market share in a fractured home-goods industry, no matter what the economic environment is.
Currently, Williams-Sonoma trades at a price-to-earnings ratio of less than 8. That's a great price for a retailer with an aspirational brand, a proven business model, a strong e-commerce business, and a dividend yield of 2.5%.
2. RH: A retail reinvention
RH (RH 0.74%), the high-end home-furnishings company formerly known as Restoration Hardware, had a similar boom to Williams-Sonoma during the pandemic. However, its sales growth have been more sluggish this year with revenue growth coming in flat during the second quarter.
Nonetheless, the company continued to deliver industry-leading operating margins of 24.7% in the most recent quarter.
NYSE: RH
Key Data Points
RH may not be immune from the macroeconomic headwinds. In fact, CEO Gary Friedman was one of the first business leaders to warn about a recession, but he has always been one of the more creative CEOs in the industry. Despite skepticism from Wall Street, he successfully pivoted the company to a membership model, charging customers a small annual fee in exchange for a discount on products. This has driven sales growth for the company and established a loyal customer base.
Now, Friedman is pivoting the company again, launching a slew of new RH-branded businesses, including a hotel and restaurant, leasing airplanes and yachts, and even launching a streaming service focused on architecture and design. While the retail business will remain at the center of the company, those new additions should further distinguish the brand and help monetize the company's loyal customer base with experiences, in addition to products.
In the meantime, investors can take advantage of a home-furnishings stock with a long track record of outperformance that now trades at a price-to-earnings ratio of less than 10. RH stock should rebound once the macroeconomic situation improves.
3. VF Corp: A Dividend Aristocrat trading at a discount
VF Corp (VFC +1.27%) may not be a household name, but you're probably familiar with its top brands. The footwear-and-apparel company owns Vans, North Face, Timberland, and Dickies, among other popular labels.
The stock has fallen sharply this year as it has cut guidance more than once in the face of stiffening economic headwinds. This, however, presents a buying opportunity for investors, especially those on the hunt for high-yielding stocks. Currently, the stock trades at a price-to-earnings ratio of 13 and offers a 6% dividend yield.
While its performance this year has been disappointing as a stronger dollar, macro headwinds, and the shift in consumer spending to services have impacted the company, VF recently reiterated its long-term guidance for 2027, calling for strong growth.
Key Data Points
The company sees revenue growing at a mid- to high-single-digit compound annual growth rate (CAGR); an operating margin of 15%, reflecting improved gross margins and leverage in selling, general, and administrative costs; and a total shareholder return, which includes dividends and share repurchases, at a CAGR in the low double digits. To get there, the company aims to enhance its direct-to-consumer business, innovate within its existing brand portfolio, expand into adjacent markets, and focus on strategic mergers and acquisitions.
VF Corp has a long track record of success as a Dividend Aristocrat that's raised its dividend for 49 years in a row. If it can reach those 2027 goals, the stock looks like an easy bet to beat the market over the next five years.
