LB: 3 High-Growth Retail Stocks to Buy in February

The retail landscape has been witnessing an unprecedented turnaround with robust e-commerce adoption worldwide. Since businesses and individuals are choosing digital channels over physical stores to fulfill their consumption needs, businesses in in the retail sector that are focusing on their online presence should continue to outperform the broader market.

Investors’ confidence in retail stocks can be seen in ProShares Online Retail ETF’s (ONLN) 33.8% gains over the past three months versus the SPDR S&P 500 ETF Trust’s (SPY) 13.3% returns in the same period. And with more retailers transforming their digital operating models, the online retail business should gain even greater momentum this year and beyond.

With economic recovery as his main focus of 2021, President Joe Biden plans to rejuvenate consumer spending and boost business growth through direct fiscal stimulus. This should bode well for retailers like L Brands, Inc. (LB), Urban Outfitter, Inc. (URBN), and Citi Trends, Inc. (CTRN). These high-growth companies are well-positioned to grab more market share. So, we think it could be wise to bet on them right now.

L Brands, Inc. (LB)

LB is a specialty retailer of women’s apparel, personal care, beauty and home fragrance products. It operates through three segments – Victoria’s Secret, Bath & Body Works, and Victoria’s Secret and Bath & Body Works International. The company offers its products under the brand names Victoria’s Secret, PINK, Bath & Body Works, C.O. Bigelow, among others.

In December, LB appointed Julie Rosen as President, and Deon Riley as Chief Human Resources Officer at Bath & Body Works. This key leadership change should help support the company’s continued growth, as well as contribute to the development of compelling products across all categories.

Last November the company appointed Martin Waters as the Chief Executive Officer of Victoria’s Secret Lingerie , Laura Miller as the Chief Human Resources Officer of Victoria’s Secret, and Janie Schaffer as the Chief Design Officer of Victoria’s Secret Lingerie. Their vast knowledge and experience should help the company deliver success and grow profitable sales across international markets.

LB’s Bath & Body Works’ sales increased 54.9% year-over-year to $1.70 billion for the third quarter ended October 31, 2020. Victoria’s Secret direct sales grew 41.9% from the year-ago value to $470 million. The company reported an operating income of $580.6 million compared to an operating loss of $151.2 million for the quarter ended November 2, 2019.

2024 STOCK MARKET OUTLOOK

The company’s total assets have grown at a CAGR of 12.6% over the past three years, while its levered free cash flow grew at a CAGR of 37.6% over this period. This reflects the company’s robust growth over the past few years.

A consensus EPS estimate of $0.03 for the next quarter ending April 31, 2021 represents a 103% improvement from the year-ago value. Also, LB beat the Street’s EPS estimates in three of the four trailing quarters, which is impressive. The consensus revenue estimate of $2.14 billion for the next quarter represents 22.9% growth from the same period last year. The stock has gained 80.7% over the past year.

LB’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. LB has a grade of A for Growth, Sentiment, and Quality. Of 67 stocks in the B-rated Fashion & Luxury industry, LB is ranked #3. In total, we rate LB on eight different components. Beyond what we stated above, we have also given LB grades for Stability, Value, and Momentum. Get all the LB ratings here.

Urban Outfitter, Inc. (URBN)

Based in Philadelphia, Pennsylvania, URBN operates as a retailer and wholesaler of general consumer products, through retail, wholesale, and subscription segments. The company serves its customers directly through retail stores, as well as through websites, mobile applications, and digital businesses.

Last December, URBN promoted Melanie Marein-Efron, the company’s Executive Director of Corporate Development and Finance, to Chief Financial Officer. Her experience, dedication and thoroughness should help the company hit new highs in the near future.

URBN’s Urban Outfitters’ sales increased 5.2% year-over-year to $394.05 million in the third quarter ended October 31, 2020. The company’s gross profit rose 0.6% from the year-ago value to $322.94 million, while its net income increased 37.8% year-over-year to $76.70 million over this period. URBN’s EPS grew 36.8% from the prior-year quarter to $0.78.

The company’s revenue has grown at a CAGR of 0.5% over the past five years, while its tangible book value grew at a CAGR of 3.7% over the past three years. URBN’s total assets grew at a CAGR of 21.8% over the past three years. This growth momentum should continue as the demand for e-commerce grows. A consensus EPS estimate of $0.1 for the next quarter ending April 31, 2021 represents a 107.1% increase year-over-year. The consensus revenue estimate of $795.09 billion for the next quarter represents a 35.1% increase from the same period last year. The stock has gained 6% over the past year.

It is no surprise that URBN has an overall rating of B, which equates to Buy in our POWR Ratings system. URBN has a grade of B for Quality and Growth.

To see additional POWR Ratings for Value, Stability, Momentum, Sentiment and Industry for URBN, click here.

Citi Trends, Inc. (CTRN)

CTRN is a value-priced retailer of fashion apparel, accessories, and home goods. The company provides apparel, accessories, functional bedroom, bathroom, and kitchen products, as well as beauty products and toys. As of February 1, 2021, the company owns and operates 571 stores in urban and rural markets in 33 states.

In December authorized another $30 million share repurchase plan as the next step in its continued capital return program. This demonstrates the company’s continued confidence in its business and its commitment to reward shareholders while maintaining financial flexibility.

CTRN’s net sales for the third quarter ended October 31, 2020 increased 8.8% year-over-year to $199.1 million. Its gross margin increased 440 basis points from the year-ago value to 41.8%, driven by full-priced sales. The company reported net income of $6.97 million compared to a net loss of $1.08 million in the prior-year quarter.

The company’s revenue has grown at a CAGR of 1.5% over the past five years, while its net income grew at a CAGR of 1.1% over the past three years. CTRN’s total assets grew at a CAGR of 15.5% over the past three years. This reflects the company’s strong potential over the past few years.

A consensus EPS estimate of $2.33 for 2022 represents a 22% improvement year-over-year. The consensus revenue estimate of $857.4 million for the next year represents an 11.4% increase year-over-year. The stock has gained 150.1% over the past year.

It is no surprise that CTRN has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. CTRN has a grade of B for Growth, Value, and Momentum. In the B-rated Fashion & Luxury industry, it is ranked #1.

Click here to see the additional POWR Ratings for CTRN (Stability, Quality and Sentiment).

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LB shares were trading at $43.64 per share on Tuesday afternoon, up $1.78 (+4.25%). Year-to-date, LB has gained 17.34%, versus a 2.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...