Analyzing 7 Top Performing Retail Stocks

Includes: FDO, GWW, JCP, KSS, LB, M, ORLY
by: Rash Menaria

The following is a list of seven retail stocks that have outperformed the broader stock markets in last 3 months.


Company Name

Last 3 Months Gain


Kohl's Corp.



Macy's Inc.



J.C. Penny Company Inc.



Limited Brands Inc.



O'Reilly Automotive Inc.



W.W. Grainger Inc.



Family Dollar Stores Inc.


I like Family Dollar Stores and W.W. Grainger the most among above stocks and believe they can continue their outperformance going forward.

Family Dollar Stores Inc. operates a chain of more than 6,800 general merchandise retail discount stores and its peers include Dollar General (DG) and Dollar Tree (DLTR). FDO's comps are showing strong upward momentum benefiting from extensive remodel program, which it began in 2010. The remodeling program included increasing SKUs counts by 10%, adding food and HPC. The company completed 1,000 stores last year and another 1,000 stores this year. The remodels have been driving double-digit comps in the first year and in the second year comps at these stores should remain in the high-single digits. Going forward, Family Dollar is expected to continue gaining share given its value and convenience offering in addition to recent remodels.

The company still has a lot of scope to improve its operational metrics given it still lags peers on sales per square foot, operating margins, private label penetration and direct foreign sourcing. Improvement in these metrics coupled with strong comps is likely to cause its PE multiple to expand. The company is trading at 5%-20% discount to Dollar Tree and Dollar General, which I believe is not justified given the fact that it is going to see the most operational upside.

Morgan Stanley recently resumed coverage on the stock with an overweight rating calling it new top pick within the group.

W.W. Grainger, Inc. (Grainger) is a distributor of maintenance, repair and operating supplies and other related products and services used by businesses and institutions primarily in the United States and Canada. The current upside story in the company’s stock started at the end of last recession in 2009 when most of its smaller competitors went out of the business or were weakened significantly. Grainger took the advantage of the situation by embarking on growth initiatives to expand and improve its footprint, warehouse capabilities and product offering. Grainger is gaining market share since then. In addition to gaining market share, the company has also been successful in managing input costs and raising prices to expand margins.

The company recently reported strong Q3 results with significant earnings beat, high level of EPS quality, strong operational execution, favorable demand trends exiting the quarter, and a meaningful guidance raise by management. Grainger is seeing continued robust activity across all end markets despite of soft macro environment. Commercial, Retail and Government end markets improved sequentially while manufacturing remained steady.

Going forward, the company’s on-going growth initiatives such as product line and sales force expansion should allow it to continue its share gain. Its international expansion in Japan, China and Latin America should also catalyze growth. In addition, Grainger’s relatively more defensive customer mix, should limit its earnings downside compared with peers should the economy begins to slow.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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