The fast-paced U.S. COVID-19 vaccination drive and consequent reopening of the economy has allowed the retail industry to regain the high ground, following the pandemic driven lows it experienced last year. With approximately 63% of the U.S. population having received at least one dose of COVID vaccine, brick & mortar stores have been seeing rising foot traffic over the past couple of weeks. This trend will likely continue, given the government’s efforts to vaccinate at least 70% of the population with at least one dose by July 4.
As people re-engage with shopping at physical outlets, following nearly a year of home deliveries, the retail industry is expected to grow significantly in the coming months. The world’s largest retail association, the National Retail Federation, forecasts annual retail sales to increase between 6.5%-8.2% in 2021. Annual retail industry revenues are expected to be more than $4.33 trillion in 2021, driven by rising per-capita consumer spending and strong job growth.
Thus, we think the stocks of major retailers Costco Wholesale Corporation (COST), Target Corporation (TGT), Best Buy Co., Inc. (BBY), and Ulta Beauty, Inc. (ULTA) will outperform the broader market in the near term.
Costco Wholesale Corporation (COST)
COST operates membership warehouses in the United States and other countries. The company provides branded and private-label products in a range of merchandise categories. It also offers dry and packaged foods, groceries, appliances and electronics. COST maintains an online presence also. The company had 809 warehouses worldwide, as of April 22.
On June 3, COST reported monthly net sales of $15.59 billion for the four weeks ended May 30, 2021, indicating a 24.2% increase from the year-ago value. This improvement in net sales demonstrates the company’s impressive performance and expanding customer base.
On April 14, COST declared a $0.79 quarterly dividend per share. The company increased its dividend payouts by 12.9% in the last quarter, making its stock an attractive option for fixed-income investors.
COST’s revenue increased 21.5% year-over-year to $45.28 billion in its fiscal third quarter, ended May 9. Its operating income grew 41.1% from its year-ago value to $1.66 billion, while its net income improved 45.6% year-over-year to $1.22 billion. The company’s EPS has increased 45.5% year-over-year to $2.75.
Analysts expect COST’s revenues to increase 10.4% year-over-year to $58.91 billion in the current quarter, ending August 2021. A $3.35 consensus EPS estimate for the current quarter indicates a 10.2% rise from the same period last year. The company has an impressive earnings surprise history also; it beat the consensus EPS estimates in three of the trailing four quarters.
Shares of COST have gained 24.7% over the past year, and 2.9% year-to-date.
COST has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality and Stability. COST is ranked #13 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
To see additional COST Ratings for Value, Growth, Sentiment and Momentum, click here.
Target Corporation (TGT)
TGT is a general merchandise retailer in the United States. It provides a wide range of products, including food assortments, apparel, accessories, home decor products, electronics, household essentials and various in-store amenities also. TGT operates through its stores and digital channels, including Target.com.
On April 27, TGT collaborated with plant enthusiast and interior stylist Hilton Carter to add new styles of live and faux plants and accessories in the company’s product offerings. With searches for plants on TGT’s online stores increasing more than 300% over the last year, this collaboration should allow the company to generate a substantial rise in its revenues.
On April 19, TGT collaborated with designers ALEXIS, Christopher John Rogers and RIXO to install a limited-time-only designer dress collection. This should allow TGT to expand its product offerings, translating to an improvement in its financials.
TGT’s sales increased 23.3% year-over-year to $23.88 billion in the fiscal first quarter, ended May 1. Its income from continuing operations grew 407% from its year-ago value to $2.37 billion. Its net earnings stood at $2.10 billion, up 639.8% from the same period last year. The company’s EPS increased 643.2% year-over-year to $4.17.
Analysts expect TGT’s revenues to increase 8.8% year-over-year to $101.77 billion in the current year. A $12.20 consensus EPS estimate for the current year indicates a 29.5% improvement year-over-year. The company has an impressive earnings surprise history as well; it beat the consensus EPS estimates in each of the trailing four quarters.
TGT gained 92.9% over the past year, and 31.1% year-to-date.
It is no surprise that TGT has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. TGT has an A grade for Sentiment, and a B grade for Value and Quality. It is ranked #1 in the Grocery/Big Box Retailers industry.
Click here to view additional TGT Ratings and other details.
Best Buy Co., Inc. (BBY)
BBY is a retailer of technology products in the United States and Canada. The company operates in two segments–domestic and international. The company offers its products through its stores and online platforms. As of January 30, 2021, BBY operated through 1,126 large-format and 33 small-format stores.
On March 3, BBY introduced its Lively™ Health & Safety Services in apple watch to benefit older adults. The company also plans to incorporate its Live Agent Assist feature in other digital watches soon. Such collaborations with multiple companies indicate BBY’s substantial market share and goodwill in the technology industry.
BBY’s revenue increased 35.9% year-over-year to $11.64 in its fiscal year 2022 first quarter, ended May 1. Its domestic segment revenue increased 37.0% year-over-year to $10.84 billion, while the revenue from the international segment grew 23% to $796 million compared to the same period last year. Its operating profit grew 235.8% from its year-ago value to $769 billion, while its net income improved 274.2% year-over-year to $595 million. The company’s EPS increased 280.3% year-over-year to $2.32.
Analysts expect BBY’s revenues to increase 4.1% year-over-year to $49.18 billion in the current year. A $8.21 consensus EPS estimate for the current year indicates a 3.8% rise compared to the last year. The company has an impressive earnings surprise history as well; it beat consensus EPS estimates in each of the trailing four quarters.
Shares of BBY have gained 45.1% over the past year, and 16.2% year-to-date.
BBY has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The stock has an A grade for Momentum, and a B grade for Value, Sentiment and Quality. BBY is ranked #3 of 36 stocks in the Specialty Retailers industry.
To see additional BBY Ratings, click here.
Ulta Beauty, Inc. (ULTA)
Ulta Beauty, Inc. is the largest beauty retailer in the United States, selling various cosmetics and styling products. It also sells its own brand labeled products. The company sells its products through its website, ulta.com, and mobile applications.
On May 11, The Good Patch collaborated with ULTA to sell its plant-based beauty patches through ULTA stores and its online platforms. This should in turn benefit ULTA in promoting product diversity and attract fresh customers.
ULTA’s net sales increased 65.2% year-over-year to $1.9 billion in its fiscal first quarter, ended May 1. Its operating income grew 200.9% from its year-ago value to $305.32 million. ULTA’s net income came in at $230.29 million, indicating a 393.3% rise year-over-year. The company’s EPS increased 395% year-over-year to $4.10.
The Street expects ULTA’s revenues to increase 27.4% year-over-year to $7.83 billion in the current year. The company’s EPS is expected to increase 158.8% year-over-year to $12.06 in the current fiscal year. ULTA beat the consensus EPS estimates in each of the trailing four quarters.
Shares of ULTA have gained 31.7% over the past year, and 13.7% year-to-date.
IIIN has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. ULTA has a grade of A for Growth and Quality. It is ranked #8 in the Specialty Retailers industry.
To see additional POWR Ratings for Sentiment, Stability, Momentum and Value, click here.
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COST shares were trading at $380.40 per share on Monday afternoon, down $7.12 (-1.84%). Year-to-date, COST has gained 1.38%, versus a 13.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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