Retail Stocks: Winners and Losers in 2017

Dollarama Inc. (TSX:DOL) and Hudson’s Bay Co. (TSX:HBC) have had different experiences with the shifting retail environment in 2017.

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Statistics Canada released its report on third-quarter 2017 financial statistics for enterprises on November 24. Overall, operating profits for Canadian corporations were up 17%. Profits in retail trade rose 0.7% to $5.4 billion in the third quarter.

The financial world has been abuzz with stories of failed retailers for the last several years, as the rise of e-commerce giant, Inc. continues to disrupt the industry. However, retail in Canada has boasted some tremendous success stories in 2017. Let’s take a look at some winners and losers from this past year.

Winner: Dollarama Inc.

Dollarama Inc. (TSX:DOL) stock has climbed 65% in 2017 as of close on November 28. In late September, I’d discussed the rise of the dollar and variety store industry in both Canada and the United States. The company released impressive second-quarter results on September 7.

EBITDA jumped 24.1% to $209.2 million, and sales climbed 11.5% to $812.5 million. Dollar stores have emerged from the 2007-2008 Financial Crisis as a force with much broader consumer appeal. As the top dollar store retailer in Canada, Dollarama is well positioned for success looking ahead.

Loser: Hudson’s Bay Co.

Hudson’s Bay Co. (TSX:HBC) stock has dropped 7% in 2017. The company has battled poor quarterly earnings and the rise of an activist shareholder pushing for a turn to real estate. In the second quarter, gross profit as a percentage of revenue was 40.2% — a decline of 130 basis points from the prior year. The company posted a net loss of $201 million compared to a loss of $142 million in the second quarter of 2016.

In late October, CEO Jerry Storch, a veteran in the retail industry, announced that he would depart the company in November. Battling a difficult climate in which its large brick-and-mortar footprint is increasingly becoming a drain, the company will continue to see pressure rise into 2018.

Loser: Roots Corp.

Roots Corp. (TSX:ROOT) has fallen 18% since its initial public offering of $12 per share on October 23. Roots has been a popular Canadian brand since the 1970s, but it also faces challenges with its large physical footprint and drive to improve its e-commerce performance. In a late October article, I’d discussed why Roots is a risky play for investors. Roots has suffered a very rocky start, and the pressure is on with quarterly earnings set for release in the first week of December.

Winner: Shopify Inc.

Shopify Inc. (TSX:SHOP)(NYSE:SHOP) stock has increased over 130% in 2017. The Ottawa-based e-commerce company has been one of the top tech stock performers in both Canada and the United States since its IPO in 2015. E-commerce has shown tremendous growth over the past several years. In its third-quarter results, Shopify saw its revenue climb 72% year over year and gross profit jump 86%.

In September, Shopify found itself the target of short seller Andrew Left, who runs the investment newsletter Citron Research. CEO Tobias Lütke dismissed Left as a “troll,” and the stock has since recovered almost all of its losses since the critique.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Amazon, Shopify, and SHOPIFY INC. Shopify is a recommendation of Stock Advisor Canada.

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