3 Retail Leaders for Next Market Run

06/07/2011 1:54 pm EST


Lululemon Athletica, Under Armour, and Abercrombie & Fitch are sporting sexy growth and attractive charts, writes Elyse Andrews, editor of Cabot Wealth Advisory.

The Great Recession has been over for some time now (though many people are still out of work), and several sectors are benefiting from the recovery.

One of them is retail, which was hard hit in 2008 and 2009 as many people closed their wallets and stopped spending. In April, same-store retail sales in the US topped analyst expectations, rising 8.9% on average—one of the largest increases in the last few years.

Same-store sales are an important indicator of a retailer's internal health, so the big jump indicates that people are shopping again. [May’s same-store gain of 4.9% was slightly below estimates, but nothing to sneeze at amid persistently high unemployment—Editor.]

And lately, many great retail stocks have been popping up on my radar screen.

One of the leaders is Lululemon Athletica (LULU). I've written about LULU many times before, but the company's yoga-inspired apparel is so red hot that Lululemon has experienced inventory shortages.

This will likely affect first-quarter sales growth a bit. That said, limited supplies also can add urgency, inducing shoppers to buy full-price items more quickly for fear they won't be around for long.

Wall Street expects Lululemon to report a 31% jump in first-quarter sales over last year, to $180.9 million. It's a solid gain, but still below the sales growth of the last five quarters. Analysts expect to see same-store sales growth up a strong 14%, with earnings rising 41% to 38 cents per share.

These numbers are good, but only time will tell how the stock will react. [The company is scheduled to report on Friday, June 10, before the bell.]

I still like LULU, but it has come a long way, and with the market chopping around, it may need a rest before it takes off again.

In late November, I recommended Cabot Top Ten Trader stock Under Armour (UA). Since then, the stock is up 85%. And Editor Mike Cintolo still recommends it as a hold.

Under Armour has remained one of the leading retail stocks because of its accelerating sales growth, strong earnings gains, and the view that it can challenge Nike (NKE) as the king of athletic apparel.

Under Armour should see improved sales from its footwear line and new Charged Cotton clothing, which combines cotton and the company's moisture-wicking technology. Many on Wall Street think this innovative apparel will be a big seller.

Abercrombie & Fitch (ANF) recently reported strong first-quarter results. The company's net income came in at $25.1 million, or 28 cents per share, versus a loss of $11.8 million, or 13 cents per share, in the year-ago period.

Abercrombie is known for its pricier teen clothes, and was hurt badly in the recession, but same-store sales have bounced back nicely. Revenue at stores open at least a year jumped 10% in February through April from the same period a year ago.

International revenue soared 64%, boosting the company's overall revenue 22% to $837 million. And this should only continue, because Abercrombie has plans to open several more stores overseas in the near future.

ANF took off in early April on huge volume. Since then, the stock has worked to build a base in the mid-70s. [It’s pulled back modestly over the last ten days to just above $70 by Tuesday afternoon, testing its rising 50-day moving average—Editor.]

ANF reacted well to its earnings report, and I think the stock can go far if the market stabilizes.

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