10 Healthiest Retailers

The financial health of retailers is more important that ever. Here are the top 10, according to a study by Consensus Advisors.
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) -- The financial health of retailers is a growing concern, especially since May sales data revealed last week that any recovery in consumer spending is likely to be drawn out.

In an effort to provide a more complete picture of the state of the retail business in the U.S., Consensus Advisors, a boutique investment firm specializing in retail, studied about 160 publicly traded companies over a five-year period. The firm looked at the growth, asset utilization, pricing power and balance-sheet strength in order to rate each of the retailers on its list.

Consensus Advisors also studied more esoteric metrics, such as store cannibalization, growth momentum, modified interest coverage, gross margin volatility, and margin-adjusted inventory turn.

"In light of the significant trauma to the economy over the past 18 months, it is more important than ever to study retailer health comprehensively, rather than relying on potentially misleading comp store sales growth statistics," Doug Stebbins, managing director at Consensus Advisors, said in a statement.

Increasingly, retail executives have grown frustrated with the short-term nature of same-store sales data -- that investors and analysts use these monthly reports as stock-trading data points and/or measures of company fundamentals -- a frustration that helped give rise to Consensus Advisors' ranking system. The firm says it intends for its report to be read in conjunction with same-store sales numbers.

"What surprised us is we didn't find any one retail category dominating the top 10," Michael O'Hara, CEO of Consensus Advisors, said.

The retailers that topped the list run the gamut in size as well as merchandise, with a $405 billion multinational monster appearing alongside a $450 million market-cap niche player

Here's a look at retailers that garnered the healthiest financial rankings, according to Consensus Advisors, for the 2009-2010 period.

10. Lululemon Athletica

Yoga-inspired retailer

Lululemon Athletica

(LULU) - Get Report

appears on Consensus Advisors' ranking for the first time. The chain draws cheers for luring shoppers with its innovative product lines.

Last week, Lululemon said its first-quarter profit more than tripled, prompting the retailer to lift its 2010 forecast. The company is seeing success with new lines of running clothes designed to provide protection from ultraviolet light. Lululemon plans to introduce gear with reflective running fabric in the third quarter.

The company now expects full-year revenue to fall between $620 million and $635 million, while earnings should be in the range of $1.05 to $1.10 a share. Lululemon previously expected revenue between $570 million and $585 million and earnings between $1 and $1.05 a share.

9. Guess

Despite some recent concern surrounding


(GES) - Get Report

-- namely a recent profit warning along with the ongoing euro-zone debt crisis -- the company still made this year's Consensus top 10.

Guess derives most of its profit from its European businesses, so the debt crisis across the Atlantic has incited at least some investor worry. But the company said during a Piper Jaffray Consumer Conference in New York last week that its European same-store sales remain positive, with no sign of a slowdown.

Last month, Guess said its first-quarter profit more than doubled, but issued guidance that fell short of Wall Street's expectations. For the second quarter, the company foresees earnings between 65 cents and 68 cents a share, while analysts were calling for 77 cents. The company set full-year guidance at $2.80 to $2.85 a share. That compares with consensus estimates of $2.99.

8. Buckle


(BKE) - Get Report

, the Kearney, Neb.-based denim specialist, moved up a spot to No. 8 on this year's list. Despite the consumer pull-back, Buckle managed to sell truckloads of its premium-priced denim; it was one of the few retailers to attain positive same-store sales results each month throughout the recession.

"Buckle continues to amaze us by its performance over the past five years," Consensus CEO O'Hara said in the report. "They continuously manage to carry the apparel teens and young adults want regardless of the shape of the economy."

But investors worry that Buckle's winning streak might be over. As far as monthly same-store sales go, it already is. In May, the company reported a 5.4% decline in same-store sales, far worse than the 0.6% uptick that analysts were expecting.

7. Coach



tackled the recession head-on, making its luxury merchandise attractive even as shoppers closed their wallets to discretionary purchases elsewhere.

The handbag and leather-goods house was able to accomplish this partly by introducing its lower-priced Poppy line. The line reduced entry-level price points by about 15%, making the Coach brand more attractive and accessible to more budget-concious shoppers.

Coach has looked to expand its business into the men's market -- still relatively untapped by the company -- with the opening of its first stand-alone men's boutique in New York in May. China also represents a promising opportunity for the company; analysts say business in the region could equal or even surpass that of North America.

6. Bed Bath & Beyond

Bed Bath & Beyond

(BBBY) - Get Report

aggressively snagged market share from the liquidation of

Linens 'N Things


The home-furnishing retailer also succeeded in picking up shoppers who have moved away from department stores. Still, with


(TGT) - Get Report



(WMT) - Get Report

beefing up their household offerings, it will be interesting to see if the company can stay competitive enough to find a spot on next year's top 10 list.

For now, the Bed Bath & Beyond appears to be firing on all cylinders. The company is debt free, and in its fourth quarter saw its profit surge 60% to $226 million, or 86 cents. Revenue shot up 17% to $2.2 billion and operating margin grew to 16% from 12%.

/>5. Wal-Mart


(WMT) - Get Report

expansion of its grocery business has been key to driving its sales during the recession, according to the Consensus report, a move that has prompted shoppers into making multiple weekly visits to the local big box.

"The company is enormously healthy, with flat to improving margins and more than $8 billion in cash," O'Hara said.

The question is: How much more can Wal-Mart grow? Though it seems that its domestic business has hit a plateau, plenty of opportunities exist overseas. During its annual shareholder meeting earlier in the month, the discount behemoth promised to hire 500,000 workers globally over the next five years.

Management has also said that it's looking into possible acquisitions in Russia and that it wouldn't rule out moving into China.

4. CVS Caremark


(CVS) - Get Report

purchase of Caremark in 2007 positioned the drugstore to grow during the recession, even while other retailers retrenched, according to the report.

"This was a smart acquisition that didn't cannibalize the business at all," O'Hara said. By comparison, rival



recent merger with Duane Reade did result in areas of overlap between the two chains.

But Consensus Advisors began its survey last year, well before CVS became embroiled in a heated dispute with Walgreen over its

pharmacy benefits management business


Last week, CVS said it would cut off Walgreen from its PBM business, an act of retaliation after Walgreen announced that it was slowly ending its deal with CVS. Walgreen said on June 7 that it planned to honor current contracts but wouldn't participate in new or renewed plans. It also predicted that it would no longer have any business dealings with Caremark in about three years.

But CVS, it seems, wanted to end the deal on its terms. This will, no doubt, be a blow to both companies. "Losing Walgreen from

the CVS network could result in major disruptions to Caremark's PBM clients, and the company has been struggling to sell its PBM offering," IBISWorld analyst Sophia Snyder said.

3. Urban Outfitters

Like other names on the Consensus list,

Urban Outfitters

(URBN) - Get Report

has been able to achieve both sales and earnings growth even as other retailers have lost customers -- and it didn't even have to resort to drastic markdowns.

In its first-quarter, Urban Outfitters posted a 72% spike in profit to $53 million as sales climbed by 25%. Gross margin widened to 42% from 37%, as promotional levels decreased.

The specialty retailer has seen margin growth every year since 2006.

2. Aeropostale



moved up two notches since 2009, the first year of the Consensus study.

The teen retailer has been a standout amid the recession, as parents and their kids flock to the store for its trendy, relatively inexpensive clothes. As a result, Aeropostale has achieved 17 months of same-store sales growth. Its margins also continue to widen; since 2005, they've expanded by 780 basis points.

1. Amazon


(AMZN) - Get Report

comes in as the healthiest retailer in the U.S. for the second year in a row. The Internet retailer "has exploited the increasing availability of broadband Internet and mobile technology to build a fast-growing and highly efficient retailing super-power," O'Hara said in the report.

Amazon has posted three consecutive quarters of profit growth. (Its stock, meanwhile, has declined nearly 9% year-to-date.) The company has chosen to focus on categories that work well on the Internet and is succeeding with its personalization efforts, according to Consensus.

Further, Amazon's recent acquisition of online footwear retailer


was a smart move, O'Hara said.

The company was added to

Goldman Sachs'

(GS) - Get Report

conviction buy list last week, as the brokerage firm said Amazon's China business could boost the retailer's revenue by $1 billion a year, and by 2015 could contribute 10% to global sales.

Still, Amazon could face currency headwinds, a concern that led


(BCS) - Get Report

to cut its price target on the stock last week to $155 from $165. The firm also lowered its full-year outlook to $2.80 a share, but maintained its overweight rating.

-- Reported by Jeanine Poggi in New York.

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