These 3 retail stocks are good deals

The holiday season is here, which means plenty of bargains await holiday shoppers in stores. But your local mall isn’t the only place to find a deal. Sophisticated investors know that stocks are also on sale.

With the S&P500 down 16%, many attractive names are currently on sale. Let’s take a look at three retail stocks that are selling low this holiday season.

1. Williams-Sonoma: a misunderstood profit machine

Williams Sonoma (NYSE: WSM) is perhaps best known as a maker of high-end homewares and kitchenware, but the company also owns Pottery Barn and West Elm. In fact, these two brands generate more revenue than the Williams-Sonoma brand.

Like other housewares retailers, Williams-Sonoma’s business has soared during the pandemic as remote working and COVID-19 lockdowns have led to increased home expenses. Unlike its peers, the company continued to post strong results, even as the economy reopened and consumer spending shifted elsewhere.

Comparable sales increased 8.1% in the company’s third quarter, contributing to a 50% increase over the past three years. That’s a staggering increase for a seemingly mature retailer. Williams-Sonoma is also very 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 its ability to control costs through its vertically integrated business model.

Thanks in part to the company’s aggressive stock buyback program, which has reduced the number of shares outstanding by 11% over the past year, earnings per share increased 13% to 3, $72.

Despite this rock-solid performance in the third quarter, the stock actually fell on the report as management pulled back from its goal of reaching $10 billion in annual revenue by 2024, due to the likelihood of a recession. Still, the company reaffirmed its ability to take market share in a fractured household goods industry, regardless of the economic environment.

Currently, Williams-Sonoma is trading at a price-earnings ratio below 8. This is a great price for a retailer with an ambitious brand, a proven business model, a strong e-commerce business and a dividend yield of 2. 5%. .

2. HR: reinventing retail

HR (NYSE: HR), the high-end home furnishings company formerly known as Restoration Hardware, has experienced a boom similar to Williams-Sonoma during the pandemic. However, its sales growth has been slower this year, with revenue growth flat in the second quarter.

Nonetheless, the company continued to post industry-leading operating margins of 24.7% in the past quarter.

HR may not be immune to macroeconomic headwinds. In fact, CEO Gary Friedman was one of the first business leaders to warn of a recession, but he’s always been one of the most creative CEOs in the industry. Despite Wall Street’s skepticism, he managed to pivot the company to a membership model, charging customers a small annual fee in return for a product discount. This spurred the company’s sales growth and established a loyal customer base.

Now Friedman is pivoting the company again, launching a slew of new HR-branded ventures, including a hotel and restaurant, plane and yacht rentals, and even launching a streaming service focused on architecture and design. While retail will remain central to the business, these new additions are expected to 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 furnishing stock with a long track record of outperformance that now trades at a price-earnings ratio below 10. The HR stock should rebound once the macroeconomic situation improves .

3. VF Corp: A Dividend Aristocrat Trading at a Discount

V.F. Corp. (NYSE: VFC) may not be a household name, but you probably know its top brands. The footwear and apparel company owns Vans, North Face, Timberland, and Dickies, among other popular brands.

The stock has fallen sharply this year as it cut its forecast more than once in the face of hardening economic headwinds. This does, however, present a buying opportunity for investors, especially those looking for high-yielding stocks. Currently, the stock trades at a price-earnings ratio of 13 and offers a dividend yield of 6%.

While its performance this year has been disappointing as a stronger dollar, macroeconomic headwinds and the shift in consumer spending towards services have impacted the business, VF recently reiterated its long-term guidance for 2027, calling for strong growth.

The Company Expects Revenue Growth at a Mid-to-High Single-Digit Compound Annual Growth Rate (CAGR); an operating margin of 15%, reflecting improved gross margins and the leverage of selling, general and administrative expenses; and a total shareholder return, which includes dividends and share buybacks, at a double-digit CAGR. To achieve this, the company aims to improve 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 has raised its dividend for 49 consecutive years. If it can meet those 2027 targets, the stock looks like an easy bet to beat the market over the next five years.

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Jeremy Bowman holds positions in HR. The Motley Fool fills positions and recommends Williams-Sonoma. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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