Everyone needs food, but they don’t need the fanciest footwear. The urge to splurge—on high-price sneakers and more—is what interests Simeon Siegel.
Overspending is often on display during the holiday shopping season, although the Covid pandemic altered how that season looks. While inflation and a post-Covid preference for experiences might leave shoppers with less money to spend on goods, Siegel argues that there can still be retailing winners this December, and beyond. “The U.S. consumer will always overspend and demand value; those are the two certainties of retail,” he says.
Running a retail business is hard. Companies need to predict demand from consumers who are more emotional than rational. The good businesses are those that are the best demand forecasters. During the pandemic, that wasn’t enough, because retailers had inventory issues. They didn’t know what products they could get, and when. When businesses can’t forecast supply, there is little divergence in performance among companies.
Despite an improvement, the company’s gross margins are still below peer averages in the high 40% range, so the opportunity to sell less and make more could be a catalyst for the stock. Victoria’s Secret is trading for only six times our 2024 earnings-per-share estimate of $2.89.Planet Fitness is the TJX of gyms. Its membership continues to grow and set records, and it offers convenience and value—factors we look for in retail, too.
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