A fall in gasoline prices led to easing inflation, with prices of goods and services rising 8.5% from a year ago in July, lower than expected. Aneta Markowska, the chief economist at Jefferies, said, “This is the most encouraging report we’ve had in quite some time.”
U.S. retail sales remained unchanged in July, as the high inflation and fear of rate hikes led consumers to spend cautiously. However, there were some positive signs. Excluding auto and auto parts, retail sales rose 0.4% in July. Moreover, compared with 12 months ago, overall retail sales were up 10.3% in July.
Consequently, the industry seems to enjoy favorable investor sentiment, as evident from SPDR S&P Retail ETF’s (XRT) 12.6% gains in the past three months compared to the 5.1% gain of S&P 500 (SPY) over the same period.
Moreover, the global department store market is expected to expand at a 5.1% CAGR between 2022 and 2028. Given this backdrop, fundamentally strong retail stocks Macy’s, Inc. (M) and Nordstrom, Inc. (JWN) might be solid buys now.
Macy’s, Inc. (M)
M is an omnichannel retail organization that operates stores, websites, and mobile applications. The company sells a range of merchandise, such as apparel and accessories for men, women, and children, cosmetics, home furnishings, and other consumer goods.
On July 20, M announced that the company plans to open four new off-mall, small-format stores this fall as part of its Polaris strategy. The company expects to reposition its physical store footprint to serve its customers better and effectively support omni channel market sales growth.
Earlier in July, it was reported that M had expanded its partnership with WHP Global to bring the Toys”R”Us brand to its American stores this holiday season. This might bolster the top line of the company.
For the 26 weeks ended July 30, M’s net sales increased 5.7% year-over-year to $10.94 billion. Its operating earnings grew 6.2% from the year-ago value to $862 million, while its adjusted net earnings improved 10.2% year-over-year to $592 million. The company’s adjusted earnings per common share increased 23.8% from its year-ago value to $2.08.
The consensus EPS is expected to be $4.21 for the fiscal year ending January 2023. The consensus revenue is expected to be $24.46 billion for the same period. Additionally, M has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 5.3% over the past three months and 1.4% over the past month to close its last trading session at $18.55.
M’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
M is rated an A in Value and a B in Quality. Within the Fashion & Luxury industry, it is ranked #31 out of 67 stocks. To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for M, click here.
Nordstrom, Inc. (JWN)
JWN is a fashion retailer that offers apparel, shoes, beauty, accessories, and home goods for women, men, young adults, and children. The company’s offerings include a range of brand names and private label merchandise through various channels.
On August 17, JWN declared a quarterly dividend of 19 cents per share payable to shareholders on September 14, 2022. This reflects the solid liquidity position of the company.
On July 26, JWN announced its plans to open new Nordstrom Racks, the company’s off-price retail division, located in Chattanooga, Tennessee, and Wichita, Kansas. The new locations should add to the company’s revenue.
JWN’s total revenues came in at $4.10 billion for the second quarter of 2022 ended July 30, representing a 12% year-over-year growth. Its adjusted EBITDA grew 17.6% from the prior-year quarter to $341 million, while its net earnings rose 57.5% from the same period last year to $126 million. The adjusted EPS increased 65.3% from the prior-year period to $0.81.
Analysts expect JWN’s revenue for the fiscal year ending January 2023 to be $15.66 billion, indicating a 5.9% year-over-year growth. The company’s EPS for the same quarter is expected to increase 60.7% to $2.41. Additionally, JWN has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
JWN has declined 9.2% over the past six months to close its last trading session at $18.57.
It is no surprise that JWN has an overall B rating, which translates to Buy in our POWR Ratings system. The stock has an A grade for Value and a B for Quality. It is ranked #14 in the same industry.
Beyond what we’ve stated above, we have also given JWN grades for Growth, Momentum, Stability, and Sentiment. Get all JWN ratings here.
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M shares were trading at $18.92 per share on Thursday afternoon, up $0.37 (+1.99%). Year-to-date, M has declined -26.71%, versus a -11.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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