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Retailers saw a mixed bag for the first half of the holiday shopping season. The prime shopping day, Black Friday, turned out to be a disappointment as spending over Thanksgiving weekend fell 3.5% from last year.
However, many retailers saw an impressive turnaround heading into Christmas. Sales for brick-and-mortar retailers for the week ending Christmas Eve were up 6.5% from last year.
That means some companies down on their luck following Black Friday, could now find themselves beating sales forecasts. With that in mind, here are the top three retail stocks we’ve found that could be winners from the holiday season:
Top Retail Stocks From the Holidays: Ralph Lauren (NYSE: RL)
Ralph Lauren was beaten up for most of 2016, with its stock being more than cut in half from the $180 a share we saw in 2015. Now, the stock is too cheap to ignore, trading at just 15 times next year’s earnings estimates. It offers a 2.2% dividend yield.
What makes Ralph Lauren interesting for 2017 is that it managed to sell off a lot of inventory during the holiday shopping season. The buildup of older and out-of-season inventory was proving to be troublesome. This holiday season, Ralph Lauren managed to reduce its inventory 15% from last year. The move to take on fast-fashion retailers, like Forever 21 and H&M, head-on was a positive this holiday season. Recall that Ralph Lauren brought in fast fashion expert Stefan Larsson as its CEO last year.
Ralph Lauren’s goal is to re-build itself as a premium brand. That includes doing away with store-in-a-store concepts at Dicks Sporting Goods (NYSE: DKS) and reducing its inventory in off-price retailers. These efforts should help carry Ralph Lauren’s turnaround beyond the holiday shopping season.
Top Retail Stocks From the Holidays: PVH Corp. (NYSE: PVH)
PVH Corp. has a variety of brands, from Calvin Klein, Tommy Hilfiger and Van Heusen. It also licenses brands like Speedo, Geoffrey Beene and Michael Kors (NASDAQ: KORS). What makes PVH a big winner this holiday season is that men’s apparel was one of the best performing categories.
And shares of PVH are looking cheap. Its stock has fallen 17% in just the last month and is now trading at 12 times next year’s earnings estimates. While its dividend yield is just 0.2%, PVH has been using its strong free cash flow to buy back shares aggressively. The company is in a turnaround that should be buoyed by the buybacks from the cash flow brought in by the holiday shopping season.
Top Retail Stocks From the Holidays: Williams-Sonoma (NYSE: WSM)
Williams-Sonoma operates home-furnishings stores that also have a strong presence in the online world; it generates half its revenues from online sales. And online shopping for the 2016 holiday shopping season was a bright spot: online consumer spending rose nearly 20% this holiday season from last year.
That should prove to be a big positive this year for Williams-Sonoma and all of its brands and store chains, including Pottery Barn, West Elm and Rejuvenation.
Williams-Sonoma is also a premium brand, which will carry the company’s turnaround beyond the holiday season — especially as the economy continues to strengthen. Williams-Sonoma stock also offers a 3% dividend yield, one of the best in the home furnishings industry. Plus, it has the tailwind of stronger home sales across the U.S. The exposure to online sales should give Williams-Sonoma a nice boost when holiday numbers are released.
So while the strong online sales and strength in home furnishings will be a positive for Williams-Sonoma in the near-term, it’s the strong home sales and bustling economy that can carry Williams-Sonoma through 2017.
The true winners of this holiday season will emerge when holiday sales figures are released in coming weeks. The three retail companies above are also poised to dominate the shopping scene longer term and will continue delivering gifts for shareholders.