3 TURNAROUND Retail Stocks with Significant Potential Upside

With the positive developments on the vaccine front, the start of a global economic recovery is hoped for soon  Moreover, a bipartisan group of lawmakers have delivered a $908 billion coronavirus relief plan proposal. If passed, the relief plan together with vaccine distribution should provide a boost to the retail space as the economic recovery drives higher consumer spending…

As consumers have become comfortable with online shopping, established brands that focus on strengthening their online platforms and direct-to-consumer services are expected to thrive in the long run.

Investors’ renewed confidence in the retail space is evident from the SPDR S&P Retail ETF’s (XRT) 37.4% gain over the past 6 months. While some retail companies failed to stay afloat amid the pandemic, Gap, Inc. (GPS – Get Rating), Ralph Lauren Corporation (RL – Get Rating), and Natuzzi, S.p.A. (NTZ – Get Rating) performed relatively well . In fact, these three companies delivered strong results in their last quarterly earnings reports. With the holiday season providing some support, we think these retail stocks are expected to bounce back in a big way.

Gap, Inc. (GPS – Get Rating)

Based in San Francisco, California, GAP is the largest specialty apparel company in the United States. Operating worldwide, the company’s products are available to customers online through company-owned websites and using third parties that provide logistics and fulfillment services. GPS offers its products under the brands — Old Navy, Gap, Banana Republic, Athleta, Intermix, Janie and Jack, and Hill City brands.

For the third quarter ended October 2020, GPS’ net sales increased 22% sequentially to $4 billion. driven by a 61% year-over-year increase in online sales. For the Athleta brand, comparable net sales increased 37% year-over-year–the highest yearly growth the brand’s history. The company recovered in the third quarter, reporting positive net income and EPS compared to negative values in the second quarter. Reported net income and EPS were $95 million and $0.25, respectively, for the third quarter.

Analysts expect GPS’ revenue to increase 46.1% for the quarter ending April 2021, and 13.5% in 2022. The company’s EPS is expected to increase 93.6% for the quarter ending April 2021, 160.6% in 2022, and at a rate of 2.3% per annum in the next five years. In the past 6 months, the stock rallied 57.4% to close yesterday’s trading session at $21.49.

GPS announced in November that Sandra Stangl will join the company as the new President and CEO of the Banana Republic brand. The company unveiled its Power Plan 2023 strategy, a couple of months ago. Also, earlier this year, Kanye West partnered with GPS bringing his YEEZY brand into the company. The YEEZY Gap line is expected to appear in Gap stores in 2021.

Ralph Lauren Corporation (RL – Get Rating)

RL, based in New York, is a global leader in the designing, marketing, and distribution of premium lifestyle products. The Company operates through three segments — Wholesale, Retail and Licensing. The company’s brand names include Ralph Lauren Collection, Polo Ralph Lauren, Double RL, Polo Ralph Lauren Children, Chaps, and Club Monaco, mong others.

Even though deeply affected by the pandemic, the company has and reported promising results for the quarter ended September 2020. Net revenues increased 144.8% sequentially to $1.2 billion. RL continued to…

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