"To me, retail has been like airline stocks used to be for Warren Buffett -- value traps. "
I've recently been thinking about the same with retail. Retail can suck you in with valuation, but big trends are working against them. So many conference calls talk about declining mall traffic, and ultimately the transformation of malls seems to be only in the early stages. Further closing of anchor stores and possibly entire malls only exasperates the problems. Fixed cost leverage on retail businesses magnifies what we see also. Additionally, and this is still a big unknown, but a proposed border tariff could increase prices quite a bit for struggling stores.
On the bullish side, industries in decline can create better environments for the survivors. Additionally, costs on future lease renewals are probably going down.
I'm still long several in the space including: DG, DLTR, DKS, and HIBB, but sold out of the more fashion oriented stores of KORS, EXPR, and FRAN.
Of those that that I hold, I'm probably weakest on HIBB Hibbett, and almost liquidated it, but I'm thinking the sporting goods/athletic apparel space is going through contraction now, and DKS and HIBB should probably be in better position once other companies fail/close. The dollar stores are in price war with WalMart, as well as seeing their core customer under increased budget pressure, but both seem confident their business model is up to the challenge, although it's clear they're more pressure than this time last year. |
