Third Quarter’s Ménage à Trois Can Excite Investors, Too

posted in: Writing | 0

David Evanson and Oliver Pursche

TheStreet.com, Summer, 2012

NEW YORK (TheStreet) — The third quarter is like no other for retailers. It contains three distinct selling seasons: summer, back to school and Halloween.

Planning and executing on this menage a trois of selling seasons presents risks and opportunities for retailers and, as a result, for investors, too.

I think there are some retailers who might falter, and a few that might, ahem, come out on top with upside to their revenue and earnings per share forecasts. The e-commerce bellwethers eBay (EBAY) and Amazon.com (AMZN) are likely to benefit from increased Internet shopping.

With the economy still sluggish and gasoline prices above $4 per gallon in many parts of the country, shoppers will look to cut costs by taking advantage of free shipping offers and online discounts. Amazon, in particular, is well-positioned to capitalize on the back-to-school season with physical and online textbook rentals.

Apple (AAPL), too, should benefit from the back to back selling seasons. Rumors of an iPhone 5 and the potential for a mini iPad would open up a bigger market.

Moreover, to paraphrase Apple CEO Tim Cook at a recent conference, “the education space offers Apple more opportunity than anything wezzve ever seen.” Donzzt forget, Apple is getting ready to pay its first dividend later this week, adding some to boost its already impressive returns.

Finally, Staples (SPLS), the office supply chain, earns very high margins on some of the staples of back-to-school season — pens, pencils, calendars, ink, even paper clips. The shares have gotten beaten up as competition has hurt sales over the past two quarters.

But, for patient investors, a 3.2% dividend and P/E below 10 make this an attractive entry point.

Of course, back-to-school also means new clothing for the kids. Izzm far from a fashion guru but I know that when droves of teenage girls head to a single destination, the retailer got the right mix.

This season, it appears that True Religion Apparel (TRLG) has the right mix. After a difficult 2011, and a significant earnings miss in the fourth quarter, the stock remains down over 30% from a year ago.

Quarter one and quarter two earnings and revenue have beaten analystszz expectations, but the stock hasnzzt rebounded. However, if my 12-year old neighbor and her friends are any indication, things might just turn around for the company over the next few months.