The past two years have seen many an investor grow weary of retail stocks amid frantic digital growth and changing consumer habits. But as the new year kicks off, a wave of fresh energy seems to be sweeping across retail — bolstered by early reads of a solid holiday shopping season. To boot, top Wall Street analysts are increasingly upbeat on several retail stocks for 2018.
Here, we round up four retail stocks market watchers say are worth a buy in 2018.
Steven Madden Ltd.
For much of the past three years, banking on a trend-right assortment and lightning speed-to-market, the fashion footwear company has consistently outperformed its peers. In the year ahead, analysts predict that Steve Madden’s award-winning formula — which also earned the firm the Company of the Year honor in November at the Footwear News Achievement Awards — will continue to reap dividends.
“We believe that Steve Madden is well-positioned for first half of ’18 with outstanding product,” said B. Riley & Co LLC analyst Jeff Van Sinderen. “With a stable of strong brands and international growth in early stages, supported by excellent management and product talent, we think 2018 should bring incremental growth.”
Similarly, in November, Wedbush Securities analyst Christopher Svezia said he was feeling “incrementally more bullish” about Madden for 2018 following meetings with the firm’s management in New York. “We maintain our argument that [Steve Madden] can attain [mid- to high-single-digit] sales and [double-digit] EPS growth for FY18,” he wrote, reiterating an outperform rating on the stock.
Sluggish athletic trends may have taken aim at Foot Locker Inc. throughout 2017, but it’s hard to keep a good retailer down. After a couple of earnings misses, the company’s better-than-expected third-quarter results — announced in November — sent its stock skyrocketing at a record pace as investors cheered Foot Locker’s ability to navigate a tumultuous climate. And analysts are taking notice — boosting their price targets and ratings for the stock.
In December, Foot Locker received a major vote of confidence from Citi when the firm gave the retailer the top spot on its Citi Buy list for 2018. Citi analyst Kate McShane of CitiBank also reiterated a buy rating on the stock and raised the price target from $47 to $54. Canaccord Genuity Inc. analyst Camilo Lyon on Dec. 15 also upgraded Foot Locker shares, from hold to buy, citing a confidence-boosting two-day meeting with Lauren Peters, EVP and CFO; and John Maurer, VP of investor relations and treasurer. “At the crux of our upgrade thesis is our belief that Foot Locker is approaching the end of the inventory clearance cycle it has been in for the past three quarters … We believe Foot Locker’s efforts to right-size its inventory will be complete by early 2018, thus setting up 2Q18 as the first quarter in which it can begin recovering much of the 150 basis points of promotionally driven margin compression suffered this year.”
Skechers USA Inc.
The casual athletic sneaker maker has a way with the Gen Z crowd and their parents these days — and the proof has been in the earnings pudding. In the most recent quarter, Skechers produced third-quarter profit growth of 42 percent to $92.3 million, or 59 cents per diluted share, blowing past market watchers’ forecasts for diluted EPS of 43 cents.
What’s more: In a distribution note today, WedBush’s Svezia said he sees the brand accelerating even more into 2018, positioning it “to outperform its footwear and apparel peers.”
“Our checks indicate that Skechers global business has been sustained if not accelerated through the month of December, leading to not only potential upside for the Q4 but also cementing our belief that consensus expectations for FY18 revenue growth are too low (particularly 1H18),” Svezia wrote, referencing consensus bets for first-half 2018 growth of 12 percent.
The analyst predicts Skechers will see mid-teens growth in the first half and also increased his estimates and price target to $45, from $39.
“A combination of strength across kid’s and men’s in addition to the anniversary of difficult comparisons in Go Walk have led to a strengthening at wholesale and retail comps, while Europe and China continue to outperform,” he added.
Van Sinderen shared similar views on the brand: “The company is gaining traction with a broad assortment of product, including the important sneaker/sneaker-derivative category, and we especially like the international growth component that should continue to fuel growth in ’18. Their business in Asia has lots of runway ahead.”
The TJX Companies Inc.
With consumers growing increasingly price-conscious, it’s no wonder off-price sellers TJ Maxx and Marshalls have found themselves in retail’s sweet spot. But it’s not just affordability that has safeguarded the TJX-owned chains throughout digital disruption. The retailer’s ability to meet consumers’ growing appetite for in-store experiences via its bargain-hunting design and inventory is expected to remain quite the crowd pleaser into 2018. Case in point: Cowen & Co. analyst Oliver Chen has dubbed TJX — also owner of Home Goods — its “best idea for 2018” based on “our view that customers always appreciate ‘deep-value’; [TJX’s] supply-chain-and-buying speed
and flexibility; and positive store traffic momentum given an un-Amazon-able treasure hunt shopping experience.” (“Un-Amazon-able” is a term often used by experts to refer to firms that are deemed less susceptible to Amazon’s retail disruption and/or are successful in spite of Amazon’s growing market share.)