Crisis creates opportunities. Nowhere is this more apparent than the retail industry. Due to the coronavirus, weak players are being carted off the field, while some are adapting and thriving under these difficult conditions….
Under normal conditions, the retail industry is challenging. There are always new competitors and consumer tastes are constantly changing. Lately, foot traffic to retail stores has been in decline, while online spending has been growing
The coronavirus intensified this struggle, especially for stores reliant on in-store traffic. The increase in the unemployment rate and drop in consumer confidence has also depressed spending. It will certainly result in bankruptcies and store closures for many companies.
For the retailers that are able to thrive under these conditions, the playing field will be wide open with fewer competitors in the way.
Here are 3 retailers that are thriving during the coronavirus:
Best Buy Co., Inc. (BBY)
This well-known retailer of technology products has quickly adapted to the “new normal” requirements with its proactive approach. As a result, BBY has recovered more than 65% since hitting its March lows due to the market crash.
BBY made a shift from all its stores to a contactless curbside-only operating model which helped retain about 81% of last year’s sales during the last six weeks of the first quarter. The company served its customers online and even via the BestBuy app requesting pickup at their store. Large products were delivered under strict safety guidelines and virtual consultations were conducted.
However, on May 4th, the company resumed valuable services and opened approximately 70% of its stores under social distancing practices. BBY’s online revenue as a percentage of total domestic revenue increased to 42.2% in the first quarter versus 15.4% a year ago. Over the past six years, BBY has issued more dividends than 85.12% of other dividend-paying US stocks. BBY has a dividend yield of 2.59% and a payout ratio of 38.1%.
In a longer timeframe, BBY’s shift to a marketplace model, where third-parties can sell directly to consumers while BBY handles the back-end has been successful. Among other recovery measures, BBY recently entered a partnership with Validic, a platform that elevates personal health data. This partnership enabled BBY to manage chronic health conditions at home by innovative remote monitoring solutions. Also, GreatCall and Critical Signal Technologies were acquired by BBY which would provide emergency and tele-health services.
BBY has an impressive earnings surprise history with the company surpassing the consensus estimate in each of the trailing four quarters.
How does BBY stack up for in the StockNews.com POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating
You can’t ask for better. The stock is also ranked #1 out of 33 stocks in the Specialty Retailers industry.
Wayfair Inc. (W)
This e-commerce leader for home products has been witnessing strong acceleration in customer orders across almost all classes of goods during these uncertain times. People are spending more time at home, so discretionary spending has shifted to upgrading their living quarters.
In the first quarter this year, the number of active customers in W’s direct retail business increased 28.6% year over year, and there was a 27.9% year-over-year increase in orders placed by repeat customers. There has been an increase in W’s expenses due to higher spend for advertisement, technology and customer service in the first quarter.
However, W is well positioned financially and is moving in the right direction to attain profitability by increasing market efficiencies. W hit its 52-week low of $21.70 in March due to the coronavirus-led market clash but gained more than 960% since to hit its all-time high of $230.92 on July 8th.
The company’s total net revenue increased 19.8% year over year in the first quarter. The consensus EPS estimate for the quarter ended June 2020 is $0.8, which compares to a loss of $1.35 per share reported a year ago.
W’s strong fundamentals and price momentum are reflected in its POWR Ratings, it has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and an ”B” in Industry Rank. Within the Specialty Retailers group, it’s ranked #2 out of 33 stocks.
Tractor Supply Company (TSCO)
TSCO is a rural lifestyle retailer that focuses on livestock, agriculture, home improvement, pet products and power equipment. TSCO operates in physical supply stores as well as digitally on its website.
The company’s net sales increased by 7.5% year over year in the first quarter this year due to the increased demand for spring seasonal categories and strength of consumable products.
TSCO has also gained because of the surge in demand for home and farm products amid the pandemic. In the first quarter, EPS and gross profit increased 12.7% and 7.5% year over year, respectively.
TSCO signed a multi-year sponsorship deal with American Kennel with a view to support dog owners and also partnered with MuttNation to launch a new line of pet food.
Although TSCO has a strong balance sheet, it has taken certain measures to ensure sufficient liquidity during this pandemic. TSCO borrowed $200 million in March under the credit facility accordion feature and it further borrowed $350 million in April by entering into an amendment to the company’s credit facility. TSCO also suspended its share repurchase program. The consensus revenue estimate for the second quarter is $3.88 billion which would represent a year-over-year increase of 65.4%.
It’s no surprise that TSCO is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” for Industry Rank. In the 33-stock Specialty Retailers industry, it is ranked #3.