Good news investors, the American consumer is back, or at least in a better condition than many had anticipated. If you go by last month’s retail sales report, you’d likely come to the conclusion that the consumer is in much better shape than many in the media had predicted coming into this year. On the heels of a widely positive report, should you “buy the news” and jump into these retailers?
The will of the consumer
As the sun set on 2012 and we turned the calendar to the new year, the media lit up with a string of worries facing the U.S. consumer. The fiscal cliff, payroll tax hike, and sequestration were just a few of the many concerns regarding the consumer. Since our economy is so heavily bent toward consumer spending, it was widely theorized that the average American would cling to their purse strings, and as a result, bring the national economic recovery to a grinding halt.
Fast forward to mid-March, and the story didn’t quite turn out that way. As a matter of fact, retail sales in the United States expanded at the fastest rate in five months in February. The results blew past economists’ expectations for a 0.5% gain, with sales increasing 1.1% during the month. Even core sales, which exclude things like gasoline, rose a stronger-than-expected 0.4%.
Focus on the winners
All this might bring you to the conclusion that we’re finally on some solid footing with regard to the consumer, and that now is the perfect time to look into retailer stocks. But not all retailers are created equal. It’s pivotal to understand who the best performers are.
Target Corporation (NYSE:TGT) operates more than 1,770 general merchandise stores in the United States, and just recently announced store openings in Canada. Target Corporation (NYSE:TGT) performed very well in 2012. Adjusted earnings per share came in at $1.65 in the fourth quarter of 2012, up 10.1% versus the same period the year prior. Full-year adjusted earnings per share were $4.76, up 7.9% from $4.41 in 2011.
Another clear retail winner is The TJX Companies, Inc. (NYSE:TJX), which showed positive sales momentum in February along with the broader retail sales report. Same-store and total sales grew 1% and 7%, respectively, in the four-week period ended March 2. The operator of TJ Maxx and Marshall’s stores has seen its shares climb more than 20% over the past 52 weeks and are now sitting near all-time highs. Indeed, the company’s performance has been as impressive as its stock price rally. TJX Companies reported spectacular adjusted earnings per share growth of 28% for full-year 2012, on the strength of a 12% rise in sales.
Of course, no conversation of retailers is complete without including Wal-Mart Stores, Inc. (NYSE:WMT) in the discussion. This king of retailers is one of the world’s true juggernauts. The company sells virtually everything, and operates more than 10,000 retail stores in more than 25 countries. Wal-Mart reported full-year 2012 total revenue of $469 billion, an increase of 5% versus the prior year.
Based on Wal-Mart Stores, Inc. (NYSE:WMT)’s fiscal 2013 results of $5.02 in earnings per share, the stock trades for a P/E ratio of slightly more than 14 times. In addition, the company expects fiscal 2014 profits to be in a range of $5.20 per share to $5.40 per share, meaning the stock trades at 13.5 times the midpoint of next year’s expected earnings.