Despite the expectation for record-breaking ecommerce sales for the full holiday season, things have gotten off to a shaky start.
Both Black Friday’s and Cyber Monday’s online sales totals marked declines from last year’s numbers. While the declines were modest (about 1.1% on Black Friday, and 1.4% on Cyber Monday), they marked the first time that sales growth started the official holiday season with a year-over-year reversal. What does it mean?
The blue-sky case is simple: consumers are simply pulling purchases forward, as a hedge against the supply chain problems, and the results is larger sales spread out across more time. In this case, the Black Friday and Cyber Monday yoy declines were merely statistical artifacts. The gray-sky scenario is also simple: supply chain problems and rising inflation are depressing discretionary spending. In that case, we’ll likely see further sales misses going forward.
In an unpredictable environment like this, we should turn to Wall Street’s experts to find the stocks that are ready to thrive. Street analysts have turned their gaze to retail stocks that are new to the public markets; both hold Strong Buy consensus ratings, and certain analysts see these names surging higher by at least 80% over the coming months. A look at the details, from the TipRanks platform, along with fresh commentary from the Street’s professional analysts, should shed some further light on them.
Allbirds, Inc. (BIRD)
We’ll start with a footwear retailer, Allbirds. This New Zealand-based company bills itself as a sustainable shoe company, whose products have a carbon footprint 30% less than the standard pair of sneakers. The company is committed to taking an environmentally friendly approach to shoe manufacturing, and uses all-natural and sustainably-sourced materials in its full line of footwear. Materials include merino wool, sugarcane, and eucalyptus wood.
Allbirds was founded in 2015, and since then has sold over 8 million pairs of shoes. Of the 4-million strong global customer base, 3.3 million are in the US. Allbirds has shunned the wholesale strategy, with its low margins, in favor of selling direct-to-consumer. The company has a strong e-commerce presence, as well as 9 distribution centers and 31 physical retail stores.
Allbirds took advantage of the rising stock environment to hold its IPO on November 3. After selling 20.2 million shares for $15 each, Allbirds raised approximately $303 million through the IPO, making the event a strong follow-up to a $1.7 billion funding round held last year. The stock made a strong first impression, opening a way above the public offering price but has slipped by 51% since its first day’s closing price, partly due to a mixed Q3 report.
In the quarter, the company reported $62.7 million in net revenue, a yoy gain of 33%. However, on a negative note, Allbirds’ net EPS losses remain high, at 25 cents per share, a figure which also missed the Street’s estimate by $0.14.
That said, Baird’s Mark Altschwager sees real opportunity here. “At just ~6 years old and $250 million in revenue, Allbirds is a mission-driven lifestyle/performance brand in the early innings of its growth journey (huge opportunity to build awareness and distribution),” the 5-star analyst writes. “Accelerating product innovation, rooted in sustainable materials, aligns with secular trends and creates a strong moat. We see a runway for ~25-30%+ sustained revenue growth and improving profitability as the business scales…”
These comments back up Altschwager’s Outperform rating, and his $26 price target implies a one-year upside potential of 83%. (To watch Altschwager’s track record, click here.)
It’s not just Baird that is bullish on Allbirds; Wall Street’s analysts have filed 12 reviews on the stock, which break down 9 to 3 in favor of Buy over Hold – for a Strong Buy consensus rating. The average price target of $24.91 indicates room for 75% gains from the current trading price of $14.19. (See Allbirds’ stock analysis at TipRanks.)
Arhaus, Inc. (ARHS)
The second stock we’ll look at is Arhaus, a US furniture company founded back in 1986. This company offers customers a wide range of home and outdoor furniture, including sets for living rooms and dining rooms, bedrooms and home offices. Arhaus’ mantra is that furniture should be “sustainably sourced, lovingly made, and built to last.” The company works with artisans around the world to source its pieces, and this year broke ground on a 500,000 square foot upholstery facility in North Carolina.
Like Allbirds above, Arhaus prefers a direct-to-consumer business model. The company sells products online, through its website, and also has a network of 75 showrooms around the country. Arhaus has a reputation for responsible materials sourcing, innovative furniture designs, and customer-centric service.
Stock in Arhaus hit the public markets on November 4 of this year, in an IPO that was downsized from the original expectations. Prior announcements had led the Street to expect some 13.9 million shares to go on sale, at $14 to $17 each; the event saw 12.9 million shares made available to the public, with pricing at $13 per share. The stock closed its first day at $12.80.
Despite the disappointment of a downsized offering, Arhaus still raised $167.7 million from its initial public offering. The stock price has declined some 34% from its opening day, and the company’s current market cap is estimated at $1.18 billion.
Nevertheless, Jefferies analyst Jonathan Matuszewski sees Arhaus as a “founder-led retail growth story.” He adds, “Arhaus is a rapidly-growing retailer in the $62B premium home furnishings industry that gives investors exposure to strength in spend among affluent households, long-term showroom growth, robust unit-level economics, and a path toward 18% EBITDA margins. We see potential for upward EPS revisions to conservative guidance and a lessening of the valuation discount vs. its largest direct peer over time as stock catalysts.”
Matuszewski sets a Buy rating on the shares and his $16 price target suggests the stock has a 90% runway going forward. (To watch Matuszewski’s track record, click here.)
Overall, it’s clear that this stock has picked up some love from Wall Street. The 9 recent share reviews include 8 to Buy against just a single Hold, for a Strong Buy consensus rating. The average price target is $14.88 and the trading price is $8.42, for a 77% upside potential over the next 12 months. (See Arhaus’ stock analysis a TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
