Carnage is widespread in the retail space. Stocks in the group are continually challenged by competition and the long-term threat of being eviscerated by the Internet.
Brick and mortar retail cannot survive . . . or so goes one line of thought.
That pessimism has translated to stock underperformance in the near term, but there are stocks defying the trend and even welcoming the difficult challenges.
Two of those stocks are highly rated by Wall Street and may be good additions to any portfolio today.
Management of Bed Bath & Beyond (NASDAQ: BBBY) does not hide behind the easy excuses.
Sure, brick and mortar retail faces unique challenges, but those challenges can be overcome by employing a strong team.
By comparison to rival home furnishing company Pier 1 Imports (NYSE: PIR), Bed Bath & Beyond is doing fantastic.
In the most recent reported quarter, Bed Bath & Beyond posted results that exceeded Wall Street expectations. At Pier 1, the results were the opposite; Pier 1 disappointed investors with weaker-than-expected results.
What was the difference?
Theoretically, the two companies faced the same market.
According to Raymond James analyst Budd Bugatch, the difference was a laser focus on customer satisfaction by Bed Bath & Beyond.
Keep the customer happy and they will likely come to the brick and mortar store despite the cheaper alternatives.
Bugatch rates Bed Bath & Beyond as a buy, putting an $80 target on shares.
Credit Suisse analyst Gary Balter notes that Bed Bath & Beyond has maintained market share during a difficult time. Any thought that its demise is around the corner may be short-sighted and ill-advised.
Balter rates the stock neutral with a $70 price target — above current prices.
Another interesting retail play is Lands’ End (NYSE: LE). This Sears (NYSE: SHLD) spinoff is also performing well, unlike its former parent.
Lands’ End shares have been on fire since the company reported earnings that beat analyst estimates and there may be more gains to come.
Zacks Investment Research rated the stock a strong buy after the earnings report suggested more good things ahead.
In making the upgrade, Zacks cited management focus on merchandising and efficient inventory management and cost control as the formula for future success.
With analysts now boosting future estimates for the company, positive momentum should be sustainable.
Still, Wall Street might be too conservative. At the moment, the expectation is for Lands’ End to grow profits by only 3% in the next fiscal year ending Jan. 31, 2015.
With the stock trading for only 16 times current fiscal year estimated earnings, and any increase in profits real and estimated, the stock has more room to run.
As for the threat of online competition, Lands’ End has made substantial investment and upgrades to its Internet presence.
The company recently touted its Lands’ End Business Outfitters website hopping to compete effectively with other on-line sellers.
The combination of brick and mortar selling along with a strong online presence bodes well for Lands’ End’s future.
I’d consider owning both of these stocks as they navigate these difficult waters.