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Analyst: Walmart, Five Below, Dollar Tree Are Holiday Retail Standouts

Analyst: Walmart, Five Below, Dollar Tree Are Holiday Retail Standouts
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The retail sector is entering the final holiday stretch is "fairly upbeat" anc consistent with industry forecasts, according to MKM Partners. 

Wal-Mart Stores Inc (NYSE: WMT), Five Below Inc (NASDAQ: FIVE) and Dollar Tree, Inc. (NASDAQ: DLTR) are standouts, said analyst Patrick McKeever

Sales continue to shift online at an accelerated pace, with e-commerce growing in the mid- to high-teens, and traditional retailers are faring well in a buoyant economy, McKeever said. (See the analyst's track record here.) 

Retailers could benefit more from the tax bill than any other sector, given their limited international exposure and high tax rates, McKeever said. And they're hoping to attract much of the savings consumers receive from a 2018 tax cut, the analyst said.

Retail Winners, Losers From Tax Reform 

DSW Inc. (NYSE: DSW) and Hibbett Sports, Inc. (NASDAQ: HIBB), with their high effective tax rates of 39 percent and 38 percent, respectively, and debt-free balance sheet, could see the biggest earnings per share lift, McKeever said. 

On the downside, MKM expects companies with lower tax rates such as Cato Corp (NYSE: CATO), Citi Trends, Inc. (NASDAQ: CTRN) and Target Corporation (NYSE: TGT) to benefit less. The unprofitable Wayfair Inc (NYSE: W) could see minimal to no near-term impact, McKeever said. 

See also: Hasbro Vs. Mattel: In A Tough Retail Environment, Which Toymaker Is Stronger?

Five Below Sees Best Traffic

MKM Partners said Five Below had by far sen the best same-store sales of any of its covered names in the third quarter, with comps rising 8.5 percent and traffic by 7.1 percent. Taking a conservative stance, MKM estimates a 5-percent same-store sales increase in the fourth quarter.

Five Below has broad-based strength in its merchandise categories, McKeever said. 

Walmart's Good Look

Walmart's strength is attributable to a strong macro and its wide reach, with 3,550-plus U.S. supercenters, McKeever said. Investments in training and wages, though hurting margins, have contributed to cleaner stocks, higher in-stock levels, better customer service and a faster check-out process, the analyst said.

MKM sees upside to its 1.9-percent growth forecast for U.S. same-store sales.

Dollar Tree: Holiday Standout

Dollar Tree's holiday quarter is a "standout," McKeever said, with "consistenyly long lines at multiple cash registers, good sell-down of Christmas trim-a-tree, gift wrap and bags, candy, etc." 

The company's Family Dollar unit, though faring better than last year, is still lagging, the analyst said.

The Rest Of The Pack

  • Ollie's Bargain Outlet Holdings Inc (NASDAQ: OLLI) and Target are designated by MKM as runners-up.
  • Kohl's Corporation (NYSE: KSS) sees uneven traffic, although it is expected to see an in-line 1-percent comp increase for the fourth quarter.
  • Cato, Big Lots, Inc. (NYSE: BIG) and Dicks Sporting Goods Inc (NYSE: DKS) are experiencing light traffic.

Related Link:

Citi Upgrades Dicks Sporting Goods, A Retail Survivor

Latest Ratings for WMT

Oct 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Oct 2018Deutsche BankUpgradesHoldBuy
Oct 2018JP MorganMaintainsNeutralNeutral

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Posted-In: e-commerce MKM Partners Patrick McKeever retailAnalyst Color Analyst Ratings Trading Ideas Best of Benzinga


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