Urban Outfitters, Inc. (URBN), American Eagle Outfitters (AEO), Williams-Sonoma, Inc. (WSM): How to Play the Retail Sector in the Second Half of 2013

Management announced earnings of $0.49 on revenue of $982 million, higher than consensus estimates of $0.47 and $940 million, respectively. Full-year earnings guidance rose to $2.69-$2.79 from a previous $2.67-$2.77.

What’s not to like with the Williams-Sonoma, Inc. (NYSE:WSM) report?

First, investors looked past the fabulous scorecard at marginal details. Same-store sales fell 0.4% at the namesake Williams-Sonoma, Inc. (NYSE:WSM) brand, in contrast to sales growth at Pottery Barn and West Elm. Second, the company introduced promotional pricing at its brand-name stores, causing margins to decline slightly based on past comparisons. I believe readers can look past these concerns, and management’s guidance remains conservative in my view.

In March, Williams-Sonoma, Inc. (NYSE:WSM) announced a 41% dividend increase and three-year $750 million share-repurchase program. This massive buyback will allow the company to repurchase nearly 15% of outstanding shares, based on recent market prices. All in all, I believe Williams-Sonoma, Inc. (NYSE:WSM) is attractively priced, and long-term investors should consider buying the stock.

Foolish bottom line
The only certainty in retail is that the consumer remains uncertain–notably in the low-to-mid range of spending.

Readers might consider limiting their retail exposure to company-specific stories, which have provided a strong forecast. The ‘AAA’ retailers of American Eagle Outfitters (NYSE:AEO), Aeropostale, and Abercrombie & Fitch have fallen out of favor with teen shoppers, and it’s unlikely that the preferences of these young adults will change in the near future.

Stocks that have performed well should continue to deliver for the remainder of the year. Urban Outfitters, Inc. (NASDAQ:URBN) presents a unique opportunity, given its strong outlook and new share-buyback plan. Williams-Sonoma made similar announcements, but the company needs to prove itself with a higher net margin in coming quarters. 

The article How to Play the Retail Sector in the Second Half of 2013 originally appeared on Fool.com and is written by John Macris.

John Macris has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters and Williams-Sonoma.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.