The Opportunity Coming to the Luxury Retail Stocks

The Pros and Cons I See in the Retail Sector Right NowWe all know how bad this winter has been so far. The harsh weather across the majority of the country has impacted jobs growth, commerce, housing, and consumer spending.

Of course, with the spring season on the horizon, we’ll soon see if the weak economic metrics mentioned were really an aberration due to the weather—or a sign of further slowing to come.

From what I can tell right now, we are definitely seeing some growth issues in the retail sector that have been attributed to the winter weather. The Home Depot, Inc. (NYSE/HD) reported a somewhat flat quarter, as did Lowes Companies, Inc. (NYSE/LOW). However, I understand why they’ve reported flat numbers—it’s winter; who wants to renovate or build when it’s so cold outside?

Bellwether Wal-Mart Stores, Inc. (NYSE/WMT) is also struggling to attract consumers to its doors. The global retailer delivered flat sales and earnings growth in its fiscal 2014; revenues grew a mere 1.6%, while earnings growth was not much better at an even two percent. Clearly, we are seeing some hesitancy in consumer spending and the retail sector.


The winter-related turmoil is not confined to just one area, though; it has impacted many retailers. However, the luxury side appears to be faring well, with excellent growth still at Michael Kors Holdings Limited (NYSE/KORS). This luxury retailer is providing staggering growth despite the sluggish retail sector. (Read “Stock Falling, but Rich Still Spending; My Top Luxury Stock Play.”) Clearly, the more affluent part of the masses continues to do very well, especially with the continued advance in the stock market, which has produced many new millionaires.

All of the soft results in the retail sector could be pushed aside as “no big deal,” but I’m seeing weakness with some of the discount stores that makes me nervous.

Take a look at Dollar Tree, Inc. (NASDAQ/DLTR), which has been one of my favorite discount retailers in the past. The company reported a big miss in its fourth quarter that has me concerned.

Quarterly revenues at Dollar Tree declined 0.5% year-over-year, while the key comparable-store sales increased a mere 1.2%. My concern is that when the ultra-bargain-hunters hold back on spending in the retail sector, it cannot be a good sign. Of course, it may have been the winter conditions, but the discounter also guided its revenues and earnings for fiscal 2015 lower. This raises concerns of pending weakness in the retail sector.

My view at this time towards the retail sector is to be cautious. I would be waiting to buy on weakness, as I believe a buying opportunity and sale will arise in the retail sector.