Retailers are overhauling their operations as technology redefines the shopping experience. This includes developing an online presence to fend off e-commerce competitors, a strategy that has helped the industry maintain steady demand by giving it more sales channels. In turn, retail stocks were up 16.5% over the past six months, on par with the S&P 500.
Although these companies have produced results lately, investors must be mindful as many companies in this space face structural headwinds. Taking that into account, here is one consumer stock boasting a durable advantage and two we’re swiping left on.
Two Consumer Retail Stocks to Sell:
Sleep Number (SNBR)
Market Cap: $165.8 million
Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ: SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.
Why Do We Steer Clear of SNBR?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Projected sales decline of 5.6% for the next 12 months points to an even tougher demand environment ahead
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Sleep Number is trading at $7.28 per share, or 1.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SNBR in your portfolio.
Williams-Sonoma (WSM)
Market Cap: $24.49 billion
Started in 1956 as a store specializing in French cookware, Williams-Sonoma (NYSE: WSM) is a specialty retailer of higher-end kitchenware, home goods, and furniture.
Why Does WSM Fall Short?
- Store closures and poor same-store sales reveal weak demand and a push toward operational efficiency
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Free cash flow margin dropped by 3.7 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $196.99 per share, Williams-Sonoma trades at 22.8x forward P/E. Dive into our free research report to see why there are better opportunities than WSM.
One Consumer Retail Stock to Buy:
O'Reilly (ORLY)
Market Cap: $88.74 billion
Serving both the DIY customer and professional mechanic, O’Reilly Automotive (NASDAQ: ORLY) is an auto parts and accessories retailer that sells everything from fuel pumps to car air fresheners to mufflers.
Why Are We Bullish on ORLY?
- Same-store sales growth averaged 3.9% over the past two years, showing it’s bringing new and repeat shoppers into its stores
- Differentiated product assortment results in a best-in-class gross margin of 51.3%
- Strong free cash flow margin of 11.1% enables it to reinvest or return capital consistently
O'Reilly’s stock price of $104.55 implies a valuation ratio of 33.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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