In the wake of some worse-than-expected earnings results from the likes of Walmart (WMT) and Target (TGT) , retail stocks are moving fast. Just three weeks ago, I wrote a column focused on retail names trading at less than 10x next year's consensus estimates, and it was a large list (I whittled it down to 19, but there were others). Given the current economic situation, I was skeptical of the seemingly low valuations; this is a very different environment.
In the ensuing three weeks, that group of 19 is down 10.6% on average, worse than the S&P 500 (down 6.6%) and the Russell 2000 (down 9%), and just two of the retailers are up during that time, Hibbett Sports (HIBB) (up 0.7%) and Foot Locker (FL) (up 4%). It could certainly be worse, and I don't believe we are in "throw the baby out with the bathwater" territory yet, aka capitulation.
The worst performers include Kohl's (KSS) (down 24%), Best Buy (BBY) (down 21%), Macy's (M) (down 20%), and Dick's Sporting Goods (DKS) (down 18%). Kohl's was up about 4.5% Thursday despite reporting worse-than-expected first-quarter results (11 cents versus 70 cent consensus), but fell in after-hours trading and into Friday due to speculation that a deal for the company may not emerge.
I had an opportunity to visit a Sportsman's Warehouse (SPWH) store (down 11%) this week; oddly there is one located just 25 minutes from home, and I previously had no idea it was there. In a word, it was impressive.
While the store was rather empty at the time of my visit, the selection of merchandise was solid. I have not seen a store so well-stocked with ammunition in a very long time. In addition, the inventory listed online was accurate. It is refreshing to visit a store that has the items in stock that it claims to on its website. The 125-store chain has a presence in 29 states, dominated by California (14), Washington (13), Utah (10), and Arizona (9).
SPWH went public in 2014 at $9.50/share, and eight years later is trading at $9. The stock was trading in the high $17 range stock last year, based on Great Outdoors Group's $18/share takeover bid, but the deal was terminated in December given the belief that the Federal Trade Commission might not approve the deal.
The company ended the year (FY ends in January) with $57 million in cash and $66 million in debt; it received a $55 million merger termination fee from Great Outdoors in December. In March, the company announced a 75 million share repurchase authorization, which will run through March 31, 2023.
SPWH currently trades at about 6.5x 2023 consensus estimates, and 5.75x 2024 estimates. Yes, I am still skeptical of the single-digit price/earnings ratios that many retailers currently boast given the economic environment, and possibility of downward revisions. However, SPWH does pique my interest, and I'll be looking for potential opportunity. I am, however, not in a hurry.
