Specialty Stores Play - BUY Recommendation!
The major indices are mixed and flat at midday following another active but directionless morning session on Wall Street. The Dow retreated slightly after hitting a marginal new record high yesterday but the Nasdaq got an early boost from the bullish earnings of Tesla (TSLA). The electric vehicle maker beat expectations across the board, and its stock is now on the verge of hitting a new record high for the first time since January. We are absolutely killing it with our TSLA position that we continue to Hold. IBM (IBM), on the other hand, took a nosedive in the wake of the firm’s revenue miss, putting pressure on the Dow in the first hours of trading.
Stock Pick Summary:
Our strategic investments and patient approach is paying off heavily with a sharp bounce in our portfolio and we continue to build on the momentum. Today, we take a second dip on a retailer of beauty products in the United States that operates in six major product segments: Cosmetics, Skincare, Bath, Fragrance, Hair care Products and Services.
Cosmetics is the largest segment by revenue. The complete product line comprises more than 600 brands, diversifying across multiple consumer purchasing power levels, thus attracting virtually all industry target groups. While the cosmetics industry is intensely competitive, its brand makes for a decent moat. The company’s growing loyalty program and online sales should also help grow the business and expand its overall margins going forward. Members grew from 23 million to 34 million from 2016 to 2019, and while this number dropped to 31 million in 2020 as a result of the pandemic, the upward trend should continue as we return to normality.
The quick recovery of the beauty industry, and consequently, of its results are evident in the company’s most recent quarterly results. In Q2, net sales increased 60.2% to $2 billion versus $1.2 billion in the comparable period last year. It announced in November 2020 that it would be opening stores inside of Target locations throughout the country. This synergy shall allow it to share in Target’s over 100 million rewards members and could strengthen its reach.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). U.S. retail sales rebounded in August after a sharp decline in July due to solid consumer spending defying the spread of the Delta variant of coronavirus. The positive momentum is likely to continue as several market researchers have predicted strong holiday retail sales this year and our retail pick is likely to reap the benefits as well.
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