The specialty hardlines retailing sector tends to be correlated with the state of the U.S. economy, including consumer confidence, the unemployment rate, personal savings rate and the housing market, which continues to be challenging; however there are some key indicators of improvement, including housing turnover and prices, says Anthony C. Chukumba, Senior Vice President and Senior Research Analyst for BB&T Capital Markets.
“On the other hand, consumer confidence is still pretty depressed relative to historical norms, the unemployment rate is stubbornly high and GDP growth is anemic. Overall, I would say it is a pretty mixed picture out there,” he said. “It is tough to place all of these companies in the same boat, because the macroeconomic environment affects them in different ways.”
Chukumba likes Pier 1 Imports, Inc., (PIR), the eclectic home furnishings retailer. Even though Pier 1 has completed a successful multiyear turnaround plan, the company’s sales productivity is still well-below historical peak level. He also likes the fact Pier 1 generates strong free cash flow, which the company consistently returns to its stockholders through share repurchases and cash dividends.
“In addition, Pier 1 has dramatically reduced its cost structure, so I think future profitability has the potential to be well-above historical peak levels. The company just recently reintroduced an e-commerce-enabled Web site, which provides a major growth opportunity going forward, particularly given the secular shift of U.S. consumers increasingly shopping online,” Chukumba said.
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