Bargain Hunting: 3 retailers in the clearance bin

Shot down by investors, these three stocks could be cheap as chips

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The retail business is one of the easiest sectors to understand as an investor. It’s all about revenue growth and margins.

Yet in a world where once-dominant players like David Jones Limited (ASX: DJS) and Myer Holdings Ltd (ASX: MYR) have become perennial losers, the first sign of trouble can spark panic selling.

That’s good news for bargain hunters. Not every retailer that hits a rough patch is headed into a downward spiral to irrelevance, and a careful investor can find some real bargains among specialty retailers.

Kathmandu Holdings Ltd (ASX: KMD)

The outdoor apparel retailer saw its shares sink 12% earlier this week, after reporting that earnings will be 10-15% below last year’s result. Kathmandu blamed the ‘warmer, drier and generally sunnier weather’ across most major cities in Australia and New Zealand.

Just a day after the announcement, south-eastern Australia was hit with a major cold weather front, with record amounts of snow falling in the Snowy Mountains.

The falling earnings could just be a one-off event and with the share price cheaper than it was a week ago, could be a buying opportunity.

Reject Shop Ltd (ASX: TRS)

Suffering from rolling out double the number of stores it would usually do on an annual basis, the Reject Shop also ran into other headwinds, also blaming warmer weather for deteriorating winter stock sales, and lower consumer confidence.

But it’s not like the company will make a loss, forecasting a net profit of around $15m this financial year. Like Kathmandu, these are likely to be short-term issues and over the long-term, today’s share price will likely look cheap.

JB Hi-Fi Limited (ASX: JBH)

The electronics retailer recently reaffirmed its profit guidance for this financial year of around $127 million, despite lower than expected sales growth. Plenty of mud has been thrown at JB Hi-Fi over the years, but very little of it has stuck. The retailer has managed to transform and grow its business despite the technological changes such as the move to digital music, movies and games.

Recent entry into the home appliance sector is likely to add another lever to generate growth in the years ahead.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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