Retail Showdown: Burlington Stores a Better Buy Than Walmart
In a retail landscape transformed by Amazon, placing fresh bets on retail stocks carries great risk.
Walmart (WMT) - Get Report is struggling to reinvent itself but has made some progress with its e-commerce initiatives. Yet there are other chain retailers that are better options for investors, including Burlington Stores (BURL) - Get Report .
The Burlington Township, N.J.-based company offers brand names at low prices. It has better profit margins than Walmart and higher same-store growth, a key metric in gauging a retailer's success. In addition, its success in the short-term won't depend as much on its e-commerce business.
Shares of Burlington rose a little over 1% in Friday trading. Walmart shares fell slightly.
Below you'll find a comparison between Burlington and Walmart.
We also lift the curtain on an ingenious investment strategy that makes money in bull and bear markets.
With a wide ensemble of brand names at bargain prices, Burlington Stores is one of those retailers with a business model Amazon can't replicate.
From a store point of view, BURL with 500+ stores is much smaller than Walmart, which has over 11,500 units worldwide. Walmart's revenue of $482 billion last year was more than Amazon, Apple and Microsoft combined.
Apple is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells AAPL? Learn more now.
However, it's best to consider other metrics to judge how the store is doing.
First of all, national off-price department store retailer Burlington has higher profit and operating margins than Walmart on a trailing 12-month basis. This shows the strength of Burlington, which in 2006 was acquired by Bain Capital in a take-private transaction, and in 2013, re-entered the public arena.
Secondly, Burlington has faster comparable store sales growth for its second quarter at between 4.2% and 4.5%. Walmart, on the other hand, expects just a 1%+ comp.
This has been the story for a long time for many discounters. Off-price retailers are attracting different shoppers than retailers who have withered under Amazon's growth.
Companies like Burlington, Ross Stores and TJX Companies are witnessing steady consumer demand even as they initiate stronger expense control and reduce promotional pressure.
Thirdly, the excessive focus on e-commerce hasn't helped players like Walmart from bleeding. Technology is great but it comes with a price and requires a gestation period. Investors can't expect Walmart to evolve into an Amazon overnight.
This is where a company like Burlington has a distinct advantage, making it an excellent under-the-radar growth play.
Burlington, Ross, and TJX have all shown how a low dependence on e-commerce can be a blessing. While Burlington Stores sells its merchandise online, e-commerce is not a major focus, and with good reason. The business model for off-price retailers is not favorable to e-commerce, since they make do with low-ticket sizes.
The focus on brick-and-mortar locations is not a formula for failure for off-price retailers. For instance, Walmart's annual revenue has grown by a pedestrian 1.2% in the last three years. In the same time, Burlington witnessed sales growth of nearly 15%.
Clearly, discount shoppers want to come to off-price stores but not exactly a large-format outlet like Walmart.
It's not surprising then that Burlington is projected to deliver earnings per share (EPS) of nearly 18% annually over the next five years. Walmart isn't expected to deliver even 2% growth.
To be sure, Burlington doesn't offer any dividends like Walmart, but dividends shouldn't be the guiding principle for returns (unless you are a retiree).
Simply put, if you want growth, go for Burlington. After nearly a 20% stock price gain already this year, analysts expect Walmart shares to take a breather.
---
What a crazy and unpredictable year!Terrorism and unexpected bursts of violence continue to roil the global markets and set investors on edge. If you'd rather avoid stocks, bonds and funds altogether during this period of extraordinary volatility, I know a way you can make a guaranteed $67,548 over the next 12 months. In fact, this moneymaking technique is so successful and simple, you might want to give up "conventional" investing forever! Click here now to learn more.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.