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After a challenging pandemic-fueled year in 2020, retail stocks have gained momentum year to date and are poised to outperform the broader markets going forward. While these companies will be impacted by supply chain disruptions, an increase in consumer spending and the upcoming holiday season should act as near-term tailwinds for stocks such as Lululemon (NASDAQ: LULU) and The Buckle Inc. (NYSE: BKE)
Let’s take a look at the positive trends that should drive the stock prices of Lululemon and The Buckle higher in the future.
The Buckle Inc.
Valued at a market cap of $2.1 billion, The Buckle operates as a retailer of casual apparel, accessories and footwear in the U.S. The company ended fiscal 2021 (ended in January) with 443 retail stores in 42 states in the United States.
The Buckle has a resilient business model and it reported a net loss in just a single quarter amid COVID-19. This loss of $12 million was reported in fiscal Q1 of 2021 that ended in May when The Buckle was impacted by store closures. In the next three quarters, its profits rose to $34.7 million, $41.6 million and $65.6 million respectively.
BKE stock is down 17% from its 52-week high, allowing investors to buy the stock at an attractive multiple. Wall Street expects the company to increase sales by 32.6% to $1.2 billion in fiscal 2022, while adjusted earnings are forecast to rise by 62% year over year to $4.29. We can see the mid-cap retailer is valued at a forward price to sales multiple of 1.7x and a price to earnings ratio of 9.7x which is really attractive, given it also pays investors a dividend of $1.32 per share.
Last year, The Buckle increased dividends by 20% and increased payouts by another 10% this April, offering investors a forward yield of 3.23%. It also pays an end-of-the-year special dividend which amounted to $2 per share in 2020. This increased its effective yield to a very tasty 12.6%.
So, while BKE stock is down 8.2% in the last decade, it has more than doubled returns after adjusting for dividends. Similarly, its stock has gained 98% since October 2016 but has surged by 217% if we include dividends.
Lululemon is valued at a market cap of $60 billion
A Canada-based retail giant, Lululemon Athletica has gained 658% in the last five years and close to 3,000% since its IPO in 2007. The company has managed to increase sales from $2.64 billion in fiscal 2018 to $4.4 billion in fiscal 2021 (ending in January). Its operating income has risen from $494 million to $849 million in this period.
In the fiscal second quarter of 2022 that ended in July, Lululemon’s sales grew by 61% year over year to $1.5 billion. Comparatively, its earnings rose by 140% to $1.59 per share. In Q3, the company expects sales to rise between 27% and 30%.
According to a Piper Sandler survey, Lululemon is the fifth-most popular clothing brand in its demographic, allowing it to compete with heavyweights including Nike (NYSE: NKE). Amid COVID-19, Lululemon managed to easily expand its direct-to-consumer vertical that accounted for 61.4% of total sales in Q2 of fiscal 2021. As its retail stores reopened this year, digital sales accounted for 41.2% of total revenue in Q2 of 2022.
Another key driver of its top-line is the expansion of the men’s business. In the last two years, sales from Lululemon’s men’s segment has risen at an annual rate of 31% compared to the 25% rise in its women’s segment. In fiscal 2022, Lululemon expects to double sales from the men’s clothing business while expanding international sales as well going forward. Right now, sales from outside North America account for 14% of total revenue.
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