Select Comfort Corp. (NASDAQ:SCSS) is another market-specific company that has been growing nicely. It is a key player in the bedding area. Select Comfort manufactures and markets Sleep Number beds and bedding through its network of more than 400 stores across the country, as well as online and over the phone. Its products have faced considerable demand, with TTM revenue climbing 25.8%. The company has widened its operating margin, from a five-year average of 7.3% to 13.4% in the TTM period. Wider margins have allowed for more of the top-line gains to make their way to the bottom line, and earnings have benefited nicely, with EPS advancing 26.9% in the TTM period, comfortably ahead of the industry average of 20.7%.
The company announced that performance earlier this year took a bit of a hit, as the company “…accelerated changes made to [its] media-buying strategy…” This was reflected in the stock price, which has fallen about 12.5% over the last month, as analysts reduced their estimates for the quarter. Investors should have a clearer picture of conditions when the company releases first-quarter earnings on April 17. Still, the analysts who cover Select Comfort Corp. (NASDAQ:SCSS) are optimistic on longer-term performance and look for the company to grow earnings by about 20% next year. Investors willing to bet that the shift in marketing will yield returns as analysts expect (or better) would do well to take advantage of the stock’s recent weakness. Its P/E is 13.9, well below the average of 20 for retail companies.
What to wear
Improvements in the labor market are also a good sign for clothing retailers. Abercrombie & Fitch Co. (NYSE:ANF) has posted some solid results. Its TTM revenue climbed 8.5%, beating the industry average of 6.5%. After collapsing at an average annual rate of 12.2% over the last five years, EPS climbed triple digits in the TTM period. Yet, its shares have fallen about 1.6% over the last month, as analysts have trimmed their estimates for the current quarter. Looking down the road, analysts remain optimistic on the company’s earnings, and expect 16% EPS growth next year.
Abercrombie & Fitch Co. (NYSE:ANF) is taking steps to increase its international presence. International sales account for approximately one-third of total revenue. The company has about 140 stores in 18 countries, with further expansion planned, including in Asia and the Middle East. One of the factors that affected the company’s performance last year was the changing dynamics in Europe. The company explained that weakness early in the year gave way to signs of strength during the latter half. Europe has, by no means, overcome its recent crisis, but the company’s gains there are a modestly positive sign. As for Asia, planned openings in Shanghai and Seoul should help the company capitalize on these relatively fast-growing markets.
Abercrombie & Fitch Co. (NYSE:ANF)’s shares are currently trading at a P/E of 16.4, a discount to the industry norm of 20. This price tag presents an appealing entry point for longer-term investors willing to bet that the company’s efforts to improve efficiency and reduce costs domestically, as well as increase its presence overseas, will be beneficial.
In sum
The US labor market continues to show signs of improvement. Absent any shocks that derail the economy from its current course, I expect further gains, which should provide a nice boost to retail companies. GNC Holdings Inc (NYSE:GNC), Select Comfort Corp. (NASDAQ:SCSS), and Abercrombie & Fitch Co. (NYSE:ANF) offer investors different ways to play improvement in retail: nutritional supplements, furniture (beds), clothing. These companies have been posting faster-than-average revenue and EPS growth, and analysts expect the advances to continue in the future. While many stocks are priced at premium valuations, each of these three is priced at a discount to the industry norm and is worth consideration by investors looking for exposure to this area.
The article Growth in Retail Earnings originally appeared on Fool.com and is written by Erik Dellith.
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