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Fast Growing Retail Stocks To Outperform

Summary

The following retailers have strong comp store sales and earnings growth.

The companies are also expanded their store counts, which will catalyze total revenue growth.

I expect the stocks to outperform due to their above average growth.

Image Source: Paramount

The great thing about retail companies is that they are highly visible, where you can witness the health of sales by visiting a store and see the merchandise moving through the registers. The retailers with stores that are typically crowded with significant selling activity are the more successful companies. Successful retailers achieve comp store sales increases, which provide a key measure of a company's sales health.

The other aspect of a retailer's visibility is the store growth. Investors can see new stores being opened in their communities and in places that they visit. This visibility provides investors with a certain comfort level that the information being reported by the companies is accurate. This reduces the chance of having an unexpected misstatement of fundamentals, which is more likely to happen with less transparent businesses (ie. Enron).

In this article, I am highlighting growing retailers that have strong store growth and comp store sales increases, with plenty of room for further expansion. These are retailers that have proven to be successful and are in the process of multiplying that success with additional new stores. The companies are profitable with strong earnings growth, which will help drive the stocks to outperform the averages going forward.

The S&P 500 is expected to grow earnings at about 10% to 11% annually over the next 3 to 5 years. However, that might be a little too optimistic since GDP growth has been so low. Even if the S&P 500 does achieve 10% to 11% EPS growth, the retailers that I'm highlighting here are expected to achieve stronger growth. So, I'm expecting the higher earnings growth stemming from increases in comp store sales and total revenue from these retailers to drive the stock to outperform the S&P 500 over the next few years.

Ollie's Bargain Outlet (NASDAQ:OLLI) is a great example of one of these successful growing retailers. Ollie's just reported a 3.5% increase in comp store sales for Q2. The company beat estimates for revenue [up 16% to $211 million] and EPS [up 75% to $0.21]. The strength in comp store sales was attributed to an increase in the number of transactions. This shows that the company is most likely attracting new customers at existing stores and/or existing customers are making more frequent purchases.

The strong results led Ollie's to raise guidance for the full year for a comp store sales increase of 2.5% to 3% up from previous guidance of 1.5% to 2.5%. Ollie's store growth continues as they opened 8 new...


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