Written by MarketBeat Stiaff
June 23, 2021
Earnings season follows a predictable pattern. Bank stocks report first; then big tech stocks weigh in. And now, late in earnings season, we hear from the retail sector. Investors were expecting strong numbers and, for the most part, retailers delivered.
However, for some retailers, this may become a “sell the news” event.
That’s because on August 16, before the big-name retailers reported, the U.S. Retail Sales Report showed a 1.1% decline in retail sales in July from June. So while retail sales for the last two quarters will be strong, investors are wondering if the sector is entering a period of slowing growth. Concern about the Delta variant perhaps bringing more restrictions to the retail sector adds to the concern.
However, sectors don’t move in lockstep. In every market, there are strong performers even in tough economic conditions. This was true during the pandemic. And it’s true in the recovery. Summer is traditionally a slower season overall for retail. The July numbers probably do not reflect all of the back-to-school purchases. And, of course, stores are already beginning to prepare for the holiday season.
Quick Links
- Walmart
- Target
- Lowe's
- Costco
- TJX Companies
- Foot Locker
- Kohl's
#1 - Walmart (NYSE:WMT)
Perhaps more than other retailers on this list, Walmart is showing that brick-and-mortar still matters. Walmart (NYSE: WMT) has invested in its digital capabilities. But as the economy recovers, there is a role for individuals having physical stores to shop in. That isn’t to say the company is not growing its digital footprint. For the quarter, the company confirmed it is still on track to generate $75 billion in digital sales for the year.
And as many retailers are dealing with supply chain bottlenecks, Walmart is having an opportunity to show why its size matters. The company has been able to navigate around supply chain difficulties and says it is prepared for the third and fourth quarters.
WMT stock is pushing closer to its 52-week high on the tailwind of a strong earnings report delivered August 16. The analyst community has taken note and at least 10 analysts have boosted their price target for the stock with the majority of those being above the consensus estimate.
About Walmart
Walmart Inc engages in the operation of retail, wholesale, other units, and eCommerce worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under Walmart and Walmart Neighborhood Market brands; membership-only warehouse clubs; ecommerce websites, such as walmart.com.mx, walmart.ca, flipkart.com, PhonePe and other sites; and mobile commerce applications.
Read More - Current Price
- $87.18
- Consensus Rating
- Buy
- Ratings Breakdown
- 29 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $91.51 (5.0% Upside)
#2 - Target (NYSE:TGT)
The dip in Target (NYSE: TGT) stock the morning after its earnings report seems to be a bit of bad luck. Investors may be in a selling mood, but Target’s data shouldn’t be a reason for pessimism. The company delivered a split decision with a slight miss on top-line revenue but recording a beat on the bottom line. However, since the earnings report, two analysts have already raised their price target for TGT stock over 10% higher than the current consensus estimate of around $250.
Target was bucking the trend of brick-and-mortar retail prior to the pandemic. The company invested heavily in its digital capabilities and that allowed it to weather the physical store closures better than most retailers. Digital comparable sales rose 10%. However, as could be expected, that number was down sharply from the 195% a year earlier and the 50% increase in the prior quarter. The comparisons are going to remain challenging for the next couple of quarters.
That being said, total comparable sales rose 8.9% which was above estimates and boosted by a 13% rise in in-store traffic.
About Target
Target Corporation operates as a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, and infants and newborns, as well as jewelry, accessories, and shoes; and beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
Read More - Current Price
- $121.73
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 13 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $171.90 (41.2% Upside)
#3 - Lowe's (NYSE:LOW)
Lowe’s (NYSE: LOW) followed the Home Depot (NYSE: HD) earnings report and may have benefited from it. HD stock dipped after reporting earnings but lowering guidance. On the other hand, LOW stock jumped after its double beat. Investors largely shrugged off the 1.6% decline in comparable sales from the prior year. And the company increased its guidance for the remainder of the year.
One reason why investors may want to take a close look at LOW stock is that concerns over the Delta variant of Covid-19 may bring home improvement projects back to the front burner. And that would be particularly meaningful to Lowe’s that is making a concerted effort to increase sales to its DIY sector (as opposed to contractors).
Investors will want to pay close attention to what the analyst community has to say about Lowe’s results. At this time one analyst firm (Credit Suisse) has raised its price target to $220 from $208.
About Lowe's Companies
Lowe's Companies, Inc, together with its subsidiaries, operates as a home improvement retailer in the United States. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating. It also provides home improvement products, such as appliances, seasonal and outdoor living, lawn and garden, lumber, kitchens and bath, tools, paint, millwork, hardware, flooring, rough plumbing, building materials, décor, and electrical.
Read More - Current Price
- $263.03
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $277.92 (5.7% Upside)
#4 - Costco (NASDAQ:COST)
The first thing many people think about when they think of Costco (NASDAQ: COST) is its ability to let many people make bulk purchases. This was a particular appeal that sent the stock soaring at the onset of the Covid-19 pandemic. And in the company’s latest earnings report there was evidence that in-store sales are still going strong. In fact, the company reported July net sales results of $176.3 billion, a 17.8% year-over-year increase from 2020 when consumers were keeping their pantries stocked.
COST stock is approaching its 52-week high which is also its all-time high. The stock has climbed over 25% in the six months prior to the earnings announcement. With that in mind, it’s fair for investors to wonder if the growth is gone. However, keep in mind that Costco does a steady business in any economy, but holds up better than some when the economy is showing weakness. This durability points to the company’s real strength, which is in its subscription model that continues to show a high amount of retention.
About Costco Wholesale
Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. The company offers branded and private-label products in a range of merchandise categories.
Read More - Current Price
- $928.08
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $908.81 (2.1% Downside)
#5 - TJX Companies (NYSE:TJX)
TJX Companies (NYSE: TJX) is most noted for the treasure hunt aspect of its signature TJMaxx stores. However, investors didn’t have to do much hunting to find great results in the company’s quarterly earnings. The company was lauded for taking a strong capital position into the pandemic, and that is serving them well as stores are reopening.
Adjusted earnings per share came in at 79 cents which is a 27% increase from the same quarter in 2019. And TJX Companies also was careful in their earnings report to give analysts a more accurate sales measure called open-only comp-store sales. This category, which the company notes is only temporary, reports sales increases or decreases in stores for the days they were operational in the second quarter compared with the same days in 2019 before the pandemic. The company reported a 20% increase in this measure.
Already five analysts have boosted their price target for TJX stock. And each analyst has given the company a price target above the current consensus price target.
About TJX Companies
The TJX Companies, Inc, together with its subsidiaries, operates as an off-price apparel and home fashions retailer in the United States, Canada, Europe, and Australia. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International. The company sells family apparel, including footwear and accessories; home fashions, such as home basics, furniture, rugs, lighting products, giftware, soft home products, decorative accessories, tabletop, and cookware, as well as expanded pet, and gourmet food departments; jewelry and accessories; and other merchandise.
Read More - Current Price
- $119.74
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $127.41 (6.4% Upside)
#6 - Foot Locker (NYSE:FL)
At the time of this writing, Foot Locker (NYSE: FL) had yet to report. However, I’ve included it on this list because the expectation is that the footwear company will report strong earnings that will beat analysts’ estimates.
Foot Locker is benefiting from the strong demand that started as people began to prioritize fitness during the pandemic. This is complemented by a trend towards casual comfort in every day (athleisure) wear. And like many retailers, Foot Locker has taken strides to beef up its omnichannel footprint.
FL stock has climbed 94% in the last 12 months. However, analysts still believe that the company’s stock may have an upside of over 12% from current levels. And in the week before the company reports earnings, the company has received two increased price targets from investors.
Analysts have also been impressed by the company’s $1.7 billion cash reserve. However, they will be listening intently to the company’s earnings to find out how the company plans to deploy this cash for international expansion.
About Foot Locker
Foot Locker, Inc, through its subsidiaries, operates as a footwear and apparel retailer in North America, Europe, Australia, New Zealand, Asia, and the Middle East. Its brand portfolio includes Foot Locker, a brand comprising sneakers and apparel; Kids Foot Locker, which offers athletic footwear, apparel, and accessories for children; and Champs Sports that operates as a mall-based specialty athletic footwear and apparel retailer.
Read More - Current Price
- $22.45
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 8 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $26.53 (18.2% Upside)
#7 - Kohl's (NYSE:KSS)
Rounding out the list is Kohl's (NYSE: KSS) which has all the look of a stock that is ready to breakout from its 52-week high that it established in March 2021. Typically when a stock begins to show a breakout pattern at a 52-week high, it’s a sign for investors that the stock is about to move significantly higher. However, at the moment, KSS stock is bumping up against its consensus price target.
Kohl’s is another chain of stores that has a “cult following.” But it appears that this loyalty is a strong growth driver. The company had a blowout report by any measure.
The company reported adjusted earnings of $2.48 per share. That more than doubled the consensus forecast of $1.21 per share. Revenue was also up 38.5% from the prior quarter at $4.45 billion. And all of this was supported by strong guidance that suggests net sales could grow by a low 20% rate.
About Kohl's
Kohl's Corporation operates as an omnichannel retailer in the United States. It offers branded apparel, footwear, accessories, beauty, and home products through its stores and website. The company provides its products primarily under the brand names of Croft & Barrow, Jumping Beans, SO, Sonoma Goods for Life, and Tek Gear, as well as Food Network, LC Lauren Conrad, Nine West, and Simply Vera Vera Wang.
Read More - Current Price
- $16.32
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 4 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $20.43 (25.2% Upside)
Investors look to the retail sector to better understand consumer spending. Consumer spending drives nearly 70% of economic growth. And that would be one reason for consumers to be concerned. The monthly report from The University of Michigan’s consumer sentiment index showed a reading of 70.2. This was a large decline from the July reading of 81.2. However, perhaps more concerning is that analysts were expecting a number of 81.3.
There are some analysts who believe this is a result of a panic-induced “one-off” based on variables like concern over the Delta variant. And historically, a large drop in consumer sentiment has been a bullish indicator for stocks.
However, past performance is not always predictive of the future. In this case, inflation is one concern that could weigh down consumer sentiment. The prices of many everyday purchases are increasing. And if that curtails spending in other discretionary areas, it could have a bearish impact on retail stocks.
More Investing Slideshows:
