Last week was a mixed blessing for retailers. Earnings reports brought shares of many traditional brick-and-mortar companies to their knees. Among the companies reporting disappointing results were: Fitbit (FIT), GoPro (GPRO), JC Penney (JCP), Gap (GPS), Fossil (FOSL), Kohl’s (KSS), Nordstrom (JWN) and Macy’s (M).
The following chart shows that—in recent months—retail sales have been pretty flat, with a small spike in April.
The onslaught of earnings misses rocked retail stock buyers, but at the end of last week, a report from the Commerce Department painted a brighter picture, showing retail sales in April increased 1.3% over the month before (which gave investors more confidence in the markets, sending the Dow up 175 points on Monday!) The divergence is due to one important factor: traditional retail vs. internet sales.
The stats confirmed my Investment of the Week report last week, in which I reported that research indicates that foot traffic in U.S. retail stores between April to July 2014 and April to July 2015, dropped 14.6%, 9.8%, 9.1% and 11%, respectively, corroborating the explosion of online shopping. And e-commerce around the world is expected to increase from $1.316 trillion in 2014 to $2.489 trillion by 2018 at a CAGR of 17%, according to eMarketer.
Indeed, the Commerce Department’s missive said that internet shopping grew 2.4% in April, and combined with catalog sales, rose 10.2% in the past year. At the same time, department store sales receded 1.7%. As well, Cowen & Co. confirmed foot traffic had dwindled in April by 7.2%.
Consequently, the rumor of the demise of retail sales—like Mark Twain’s presumed death—may be greatly exaggerated.
Furthermore, economic growth is looking rosier. Forecasting firm Macroeconomic Advisers raised its GDP growth estimates for the second quarter to 2.3% from 2%, and Barclays followed suit, booting its forecast to 2.2% from 2%. And the Federal Reserve Bank of Atlanta jumped on the bandwagon, increasing its forecast to a 2.8% gain, up from 2.2%.
And that’s all good news for our Spotlight Stock, Crocs, Inc. (CROX)—a company on its third life (or turnaround!)
As contributor George Putnam III, editor of The Turnaround Letter reports, Crocs seems to have finally found its feet, putting in place an experienced management team with years of specific focus in the shoe industry, and with a realistic plan to boost the company’s net profits.
And that seems to be working. The company beat earnings estimates by a penny in its most recent quarter, posting $0.07 per share to the bottom line. Sales were up 6.4%, to $279.1 million, again, higher than analysts’ forecasts of $266.5 million.
And while the average retailer same-store sales in April were down 1.2% (compared to the estimate of +1.4%), Crocs defied the odds, pushing its comparable-store sales up by 3.1%. That’s a pretty big accomplishment!
In the past 30 days, seven Crocs’ analysts have increased their earnings estimates for both this year and next, and are calling for triple-digit growth in 2016 and 2017. And the company’s shares were just upgraded by Sterne Agee from ‘Neutral’ to ‘Buy.’
No doubt, Crocs has had its ups and downs. But the company seems to be moving in the right direction now, and with a forward P/E of just 18.62, it appears to be trading at a discount. It may be time to don your ‘shopping shoes’ and add a bit of these shares to your portfolio.
