Retail Picks? Depends on the Growth
What should investors look for in retail stocks this week? Dana Telsey of the Telsey Advisory Group made some suggestions on CNBC's "Squawk Box" Wednesday.
Dana Telsey: I think you have to look for some of the companies that still have room to grow their store base. I certainly think all the elements...we are definitely seeing, and it's coming up in the earnings results of retailers that are reporting first-quarter earnings this week.
Carl Quintanilla: Yeah, Gymboree , J. Crew , lululemon , and Nordstrom . Are those your picks?
Telsey: Yep, those are definitely some of our picks. We see the opportunity for those companies to open more stores. They're not saturated where operating margins still have room to move higher, and where there is sales growth. The one key element that investors value is the opportunity to have topline sales growth.
CARL: What differentiates them? Are they price-pointed at an area where the consumer is relatively safe? In the case of J. Crew, is (CEO Millard) Drexler doing something just from a fashion standpoint that's going to keep people interested, no matter how thin their pockets are?
Telsey: With J. Crew, it's all about new and different. The product innovation is there. Consumers actually are looking to pay the full prices for it, because they're not keeping a lot of inventory in stock, and in addition to that, they're still not at their operating margin potential, and they're not saturated in their store base.
CARL: Interesting. Would you say you would prefer apparel, or mainliners, or discounters? In terms of sectors within your business, what do you like the best?
Telsey: I think one of the things we're looking at is, we're looking at the value retailers being very important, so when we think about value and certainly the children's area with Gymboree fits into that, because with their new concept, Crazy 8, it is at a value, and when we think about newness and differentiation with a concept that's just beginning, it's lululemon, because they're offering the social retail network, and they're creating almost a new channel, and when we think of the mainliners, it's Nordstrom, because they are opening stores this year, and we think those store openings will position them well into the future.
Michelle Caruso-Cabrera: You know, I do a lot of Yoga. Everyone in that room is wearing lululemon, and that's expensive.
Carl: Judy went shopping, she was trying to buy some work clothes the other day, and she couldn't find anything at Gap . All the stuff she likes is at J. Crew, which is like, you just follow the Drexler, right?
Telsey: Exactly. We did a poll of the women in our office, and basically, at least 20 percent of the wardrobes are coming from J. Crew lately.
Carl: Interesting. You think the stimulus checks are going to have any effect at all, Dana?
Telsey: I don't think they're having a lot of effect at all, unfortunately. I think it's going to gasoline and paying down debt. I think the second quarter is always a challenging time for the retailers, because they don't have a holiday season in order to offset some of the expenses.
Disclosure:Telsey indicated she had no ownership position in the stocks discussed.