Victoria’s Secret owner L Brands is expected to see a solid increase in same-store sales this year.
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To say 2020 was a strange year for retail would be an understatement. The Covid-19 pandemic shuttered stores, pushed sales online, and drastically altered consumers’ preferences, in terms of what they bought and how they wanted to receive it. But now that vaccines are rolling out, investors are looking forward to a very different outlook in 2021.
With (hopefully) a return to some sort of normal later this year, many investors are trying to guess how the transition will effect retailers. Which pandemic success stories will remain on top—and which hard-hit players can come bouncing back—are two major questions coming into focus as the market spies the end of the Covid crisis.
Comparable sales, also known as same-store sales, are one way to judge that. Comps are sales from existing operations, thus stripping out the benefit or impact of acquisitions, divestitures, and store openings and closings. They are a closely watched metric in regular times, but have been taking on increasing prominence in the pandemic. How a company “comps the comp”— or compares to year-ago levels—is a matter of interest as investors try to gauge how well winners can hang onto their gains, or how quickly losers can recover.
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Barron’s used FactSet to screen for retailers with market values above $2 billion that analysts expect will deliver double-digit comp growth this year. We excluded companies trading over 20 times forward earnings, as more expensive stocks may have some of that growth already embedded in their stock price.
Using data from Tuesday, some pandemic winners, like Costco Wholesale (ticker: COST) and Walmart (WMT) just missed the comp cutoff, with expected same-store sales growth of 9.5% and 8%, respectively. Others, such as Home Depot (HD) and Target (TGT), which both trade for around 22 times forward earnings, landed just above our valuation cap. We also left out Academy Sports (ASO), which had its initial public offering just over four months ago, but is expected to deliver 15% comp growth.
That left us with six stocks.
Victoria’s Secret owner L Brands (LB) has the highest estimated comps, with expected same-store sales of 24.8%, and a forward price-to-earnings ratio just above 14 times. The mall staple is certainly in the recovery basket, and while it had a difficult time at the start of the pandemic, it has since reported strong earnings and holiday sales.
Tapestry (TPR), with 14.1% expected comp growth, is fourth on the list, but it is the only other recovery-oriented stock that made the cut. While its pricey handbags, marketed under the Coach and Kate Spade brands, weren’t much in demand during lockdown, many think that will change quickly with an economic reopening. its most recent earnings report was already better than expected. The stock trades at 14 times forward earnings.
The rest of the list can be characterized as pandemic winners that look poised to keep driving sales higher. Lowe’s (LOW) has the second-highest expected comp growth, at 24.6%, and trades at 18.9 times. The home improvement retailer’s shares soared in 2020, although high expectations clouded the last earnings report. The company provided a rosy outlook in December, although analysts are split on the question of the stock’s ongoing rally.
Dollar General (DG) is third on the list, with estimated comp growth of 15.6%. The stock trades at 19.6 times forward earnings. The discounter had a great 2020, and although a slight decline in same-store sales weighed on its most recent results, analysts still like its chances in an environment where consumers seek out bargains.
Kroger (KR) is the penultimate name on the list, as analyst forecast same-store sales to rise 13.8%. While not quite matching the market, the stock still did well in 2020, as consumers stocked their pantries and ate at home more. Yet supermarkets are a category that some investors worry are most vulnerable to a return to normalcy, although others think at-home eating will remain at higher levels. Kroger stock trades at 12.6 times.
Best Buy (BBY) rounds out the group, as analysts expect a 10.5% rise in comps. Working and learning from home fueled a surge in consumer electronics demand during the pandemic, which has led to strong earnings. While some analysts warn the good times can’t last, others think that its sales lift is sustainable. The stock changes hands for 15.7 times forward earnings.
Write to Teresa Rivas at [email protected]
