The team at Cowen feels that traditional retail can stay competitive against pure-play online retailers through the leverage of physical product pick-up, seamless inventory control and preexisting brand awareness to drive multichannel traffic. Their report highlights companies that are leading the way with killer mobile apps and, best of all, loyal customers. Five to buy now are Macy’s Inc. (NYSE: M), Nordstrom Inc. (NYSE: JWN), Lululemon Athletica Inc. (NASDAQ: LULU), Restoration Hardware Holdings Inc. (NYSE: RH) and Target Corp. (NYSE: TGT).
Macy’s
Macy’s is a company that analysts at numerous Wall Street firms have applauded for the great strides it is making in improving its online sales ability. The renewed online effort helped to boost what was a very solid showing for the most recent holiday season. Many Wall Street analysts also feel that the company’s mid-teens earnings-per-share growth profile over the next several years is achievable, driven by low single-digit same-store sales growth, e-commerce and improvements in store productivity.
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The Cowen team points out the Macy’s is currently doing 12% of its total sales via e-commerce, a large number for a broad-line old-school department store. The company has consistently targeted specific demographics and former online buyers with consistent sale advertising.
Macy’s investors are paid a 2% dividend. The Cowen price target for the stock is $72, and the Thomson/First Call consensus price target is $68.78. The stock closed Thursday at $67.42 per share.
Nordstrom
Now one of the leading fashion specialty retailers based in the United States, Nordstrom was founded in 1901 as a shoe store in Seattle. Today Nordstrom operates 260 stores in 35 states, including 117 full-line stores, 140 Nordstrom Racks, two Jeffrey boutiques and one clearance store. In February, the company raised its dividend 10% for the sixth consecutive year.
The Cowen report indicates that Nordstrom leads all the broad-lines/department stores in the current e-commerce percentage of total store sale with a very impressive 15%. Given the upscale nature of the typical Nordstrom shopper, the figure is even more impressive.
Nordstrom investors are paid a 1.9% dividend. The Cowen price target is $87, and the consensus target is posted at $77.95. Nordstrom closed Thursday above that level at $78.49 a share.
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Lululemon Athletica
LuluLemon is a yoga-themed athletic apparel retailer, which was a top stock from March 2009 to May 2012. But from May 2012 to June 2014, the company suffered from upheavals at the CEO slot and other corporate issues that bogged down growth. The company finally achieved comparable-store sales growth of 5% at brick-and-mortar locations recently, its first quarter of positive growth for the metric in more than a year. At the same time, Lululemon demonstrated broad strength from not only its core women’s line, but also in its men’s business and kid-centric Ivivva brand.
The Cowen team points out that the retailer does an outstanding 19% of total store sales via e-commerce. That is the second highest in the luxury and accessories category.
The Cowen price target is $74, and the consensus target is at $66.97. Shares closed most recently at $66.48.
Restoration Hardware
This stock has been a momentum trader’s dream since coming back from private equity just over two years ago. The company is a high-brow retailer of home furnishings. Its product categories include furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware and children’s furnishings. The analysts see the company expanding product line, with the kitchen being the big launch this year. It is also expanding the next generation store galleries in a bigger format.
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As of the last report, Restoration Hardware operated 70 retail stores, consisting of 62 Galleries, five full line Design Galleries and three Baby & Child Galleries, as well as 17 outlet stores in the United States and Canada. The company leads all the retailers in the Cowen universe with a stunning 50% of total sales via the e-commerce channel.
The Cowen price target is $108. The consensus is set lower at $104.25. Shares closed Thursday at $91.69.
Target
Target’s very rough patch over the past two years is highlighted by an incredible security breach that exposed millions of customer credit cards to hackers and brought an unprecedented amount of negative publicity. With an improving economy, and after posting very decent holiday numbers, the growth path for the retail giant has accelerated fast.
Target has been increasing the focus on the Internet presence, and online sales currently make up 3% of total sales. While that number looks low in comparison to some of the others, the huge sales volume of the store tempers the overall numbers.
The company is expected to shut down all its Canadian locations by mid-May, putting about 17,600 employees out of work. While difficult, it closes a very unprofitable and ill-fated chapter, and it helps the company to move forward and concentrate on the very profitable U.S. business.
Target investors are paid a 2.5% dividend. Cowen has set a $90 price target, but the consensus target is much lower at $78. Shares closed Thursday at $81.93.
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The bottom line is the old walk-in store format did not die as was highly trumpeted. These retailers did however have to change the whole process in an effort to compete with online retail giants like Amazon.com. The lure of seeing and touching the merchandise will never totally go out of style, but the ability to shop from a computer has become increasingly important to retailers with stores.
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