A Changing Landscape For Mall-Based Retailers
The mall-based brick&mortar retail industry has been on the rocks for years. The pandemic didn’t cause this problem it only accelerated a shift to digital and non-mall retailers that was already in place. What this means for many mall-based retailers
is a lack of relevancy and an inability to reach their target markets. For some, it is an opportunity for growth. What’s the difference? In most cases, it comes down to eCommerce and category. If you operate in the right category and have a solid eCommerce presence business is booming. If not, well if not then the business isn’t so hot.
Ulta Beauty, Lack’s Brand Recognition
Ulta Beauty (NASDAQ:ULTA) is not an unknown operator but it is one, I think, with less brand-recognition than it needs to survive in today’s world. The company has a loyal following but not the kind of brand that can command the bulk of consumer dollars on name alone. Shoppers who turn away from in-store shopping at Ulta have a host of higher-profile brands and outlets for those brands with a stronger eCommerce presence to choose from. Ulta just can’t compete. An example? When I did a Google search for beauty products the Ulta Beauty website wasn’t even in the top ten.
The Q3 results were much better than expected but take that with a grain of salt. The company reported an acceleration of business from the 2nd quarter to the 3rd but revenue is still down nearly -8.0% on a YOY basis. The company’s comps fell 8.9% due to a double-digit decline in traffic partially offset by an increase in basket price. The worst part is that guidance is not good, either. The company sees comp declines accelerating to the 12% to 14% range and this may be conservative. COVID is spreading fast and the potential for store closures is growing.
Genesco Outperforms Consensus, Sales Down YOY
Genesco (NYSE:GCO), operator of Journey’s and other young-adult lifestyle brands, reported a better-than-expected Q3 but there are caveats. The primary is that net comps and revenue are down -11% on a YOY basis despite a strong showing in the eCommerce arena. eCommerce sales are up 62% on a YOY basis but not enough to overcome in-store weakness. This is important to note because much of Journey’s inventory can be purchased other places and specifically direct-from-the-source via eCommerce. Vans is only the most obvious choice, I myself get my Vans from Vans.com, and why not? You can get any style you want.
If you must buy into a name like this Tilly’s is a better choice. Tilly’s has its own apparel label to round out the offering of Vans and other branded items in the store, and at least the hope of a dividend. Tilly’s does not have a regular payment but it has been paying a special dividend annually in February. If they pay it this year in-line with the last it will be worth 11% in yield.
Williams-Sonoma Has What You Want
Williams-Sonoma (NYSE:WSM) has a couple of things going for it that Genesco and Ulta do not. For one, they dominate a high-demand niche, home/lifestyle. For another Willams-Sonoma was a leader in eCommerce before the pandemic. The combination resulted in a surge in demand that has comps trending higher on a YOY basis and accelerating on a QoQ basis. The 3Q comps came in at +24% versus the consensus 10.2% with eCommerce growing 49%. eCommerce sales are just shy of 70% of the net revenue which is very important in the post-pandemic environment. This company is virtually immune to store closures.
Looking forward, the company failed to give near-term guidance but says mid-single-digit growth should be expected for the long-term. In addition, Williams-Sonoma is a strong, steady, and reliable dividend-payer with a yield near 2.0% and 14 years of consecutive increases. The payout ratio is a low 25%, the balance sheet is strong, and free-cash-flow is ample so investors should expect to see annual increases long into the future.
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Investors thought 2021 would be a less volatile year. That narrative has run into some problems. Sure, all the major indexes are up for the year. And that’s despite the NASDAQ’s gut-wrenching 10% drop in March.
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Eventually, this is going to end badly. But timing the market is an imperfect science particularly when many investors are enjoying the game.
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