The key to aggressive investing profits in the retail sector

The Canadian consumer sector is highly competitive. Aside from other domestic retailers, Canadian retailers face rising competition from large U.S. discount retailers, like Wal-Mart and Costco. As well, consumer stocks are more exposed to swings in the overall economy than companies in some other sectors, such as utilities.

That’s especially true when you indulge in aggressive investing in consumer stocks and buy small retailers. They tend to be less well-established than larger companies, such as Canadian Tire. However, aggressive investing in consumer stocks also holds the potential for spectacular gains.

(In a just-published issue of Stock Pickers Digest, our newsletter for aggressive investing, we update our buy/sell/hold advice on a retailer that has risen 36% for us in the past year — and could go even higher. Read on for further details.)

To cut your risk and earn higher profits when aggressive investing in the consumer sector, it’s especially important to focus on retail chains that can adapt quickly and prosper in the fast-changing retail landscape.

This aggressive investing stock’s recent moves put it in a good position to profit from the rebound

In the latest Stock Pickers Digest, we’ve updated our buy/sell advice on Reitmans (symbol RET.A on Toronto). The company has made a number of smart moves to deal with rising competition and a difficult economy.

Reitmans owns 982 women’s clothing stores across Canada. The chain consists of 369 Reitmans, 165 Penningtons, 163 Smart Set, 124 Addition Elle, 76 Thyme Maternity, 66 RW & Co. and 19 Cassis stores.

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The weak economy and higher unemployment in Ontario and Alberta hurt Reitmans’ sales and profits in 2009. In response, the company spent more on advertising and closed unprofitable stores. These moves have helped Reitmans profit as consumer spending has rebounded.

However, a recovering economy hasn’t taken the company’s attention away from controlling its costs. Reitmans continues to monitor its regional markets, and open and close stores as necessary. This year, it’s opening 30 new stores, closing 11 outlets and remodelling 30 stores.

Higher sales, strong Canadian dollar push earnings higher

In the three months ended May 1, 2010, the company’s earnings jumped 111.1% from a year earlier. Sales rose 3.3%. The higher sales were the main reason for the earnings increase. The Canadian dollar’s strength against the U.S. dollar also helped, because Reitmans pays its Chinese suppliers in U.S. dollars.

The company’s sales are still rising: in the month of May, its sales rose 7.3% from May 2009. Same-store sales climbed 5.4%.

As we mentioned, Reitmans has moved up 38% for us in the past year. In the latest Stock Pickers Digest, we look to see if it can go even higher.

You can get our full analysis and clear buy/sell/hold advice on Reitmans and 19 other aggressive investing picks in the latest Stock Pickers Digest. What’s more, you can get this issue absolutely free. Click here to learn how.