3 Retail Stocks to Watch

 |  Includes: ANF, LULU, UA
by: Cabot

By Elyse Andrews

The Great Recession has been over for some time now (though many people are still out of work) and several sectors are benefiting from the recovery. One of them is retail, which was hard hit in 2008-09 when many people closed their wallets and stopped spending.

In April, same-store retail sales in the U.S. topped analyst expectations and rose 8.9% on average, one of the largest increases in the last few years. Same-store sales are an important indicator of a retailer’s internal health, so the big jump indicates that people are shopping again.

And lately, many great retail stocks have been popping up in our newsletters. One of the leading retail stocks is Lululemon Athletica (NASDAQ:LULU). I’ve written about LULU many times before, but the company’s yoga-inspired apparel is so red hot that the company has experienced inventory shortages. This will likely affect first quarter sales growth a bit. That said, limited supplies also can add urgency, inducing shoppers to buy full price items more quickly for fear they won’t be around for long.

Wall Street expects Lululemon to report a 31% jump in Q1 sales over last year, to $180.9 million. It’s a solid gain, but still below the sales growth of the last five quarters. Analysts expect to see same-store sales growth up a strong 14% with revenues rising a solid 41% to 38 cents per share.

These numbers are good, but only time will tell how the stock will react. I still like LULU, but it has come a long way and with the market chopping around, it may need a rest before it takes off again.

In late November 2010, I recommended Under Armour (NYSE:UA) and since then, the stock is up 85%. Our editor, Mike Cintolo, still recommends it as a hold.

Under Armour has remained one of the leading retail stocks because of its accelerating sales growth, strong earnings gains and the view that it can challenge Nike (NYSE:NKE) as the king of athletic apparel.

Going forward, Under Armour should see improved sales from its footwear line and new Charged Cotton clothing, which combines cotton and the company’s moisture-wicking technology. Many on Wall Street think this innovative apparel will be a big seller for the company.

I wrote about Abercrombie & Fitch (NYSE:ANF) two weeks ago; since then, the company reported strong first quarter fiscal results. The company’s Q1 net income came in at $25.1 million, or 28 cents per share, vs. a loss of $11.8 million, or 13 cents per share in the year ago period.

Abercrombie is known for its pricier teen clothes and was hurt badly in the recession, but same-store sales have bounced back nicely. Revenue at stores open at least a year jumped 10% in February through April vs. a year ago.

International revenue soared 64%, boosting the company’s overall revenue 22% to $837 million; this should only continue as the company has plans to open several more stores overseas in the near future.

ANF took off in early April on huge volume. Since then, the stock has worked to build a base in the mid-70s and hasn’t given back any of its gains. ANF reacted well to its earnings report and, if the market stabilizes, I think the stock can go far.