The retail sector looks poised for a steady recovery: 5 picks – March 29, 2022


Retail sales slowed in February due to rising costs, but the sector appears to be on the road to a sustained recovery. A not-so-impressive holiday season had raised doubts about the sector’s outlook, but a rebound in January eased concerns. Another good sign is that people are willing to spend despite rising costs.

If the sector continues to perform steadily, sales are expected to reach nearly $5 trillion this year, according to a new report from the National Retail Federation (“NRF”). Additionally, e-commerce will continue to play an important role in driving retail sales. Given this scenario, actions like Nordström (JWN free report), Target company (TGT free report), Casey General Stores (CASY free report), Tapestry, Inc. (TRP free report) and Wholesale Costco (COST Free Report) should benefit in the short term.

Retail sales expected to soar faster than pre-pandemic rate

According to a report by NRF, retail sales in the United States will jump 6% to 8% in 2022, which is higher than the pre-pandemic growth rate of 3.7%. Overall retail sales, excluding auto sales, restaurants and gasoline sales, are expected to total between $4.86 trillion and $4.95 trillion this year.

Retail sales rose 14% in the United States last year, hitting a 20-year high after the sector was hit hard in 2020 following the coronavirus outbreak. “The NRF expects retail sales to grow in 2022 as consumers are willing to spend and have the resources to do so,” said NRF President and CEO Matthew Shay.

The report also mentions that e-commerce, which has played a significant role in boosting retail sales, will continue to act as a key driver in the near term. According to the report, non-store and online retail sales will increase between 11% and 13% to $1.17 trillion and $1.19 trillion.

The NRF said last month that overall U.S. retail sales rose 3.8% seasonally adjusted from December and rose 13% year-over-year in January.

Retail sector on track for recovery

The retail sector has had a rough ride over the past couple of years. After suffering for months following the COVID-19 outbreak, the sector began to recover rapidly early last year as millions of people were vaccinated and the economy began to reopen.

However, sales began to slow after the end of the $3 trillion fiscal stimulus, which caused sales to decline during and around last year’s all-important holiday season. Rising costs have also played a spoilsport role.

Retail sales rose 0.3% in February, after a revised rise of 4.9% in January. Still, sales are well above pre-pandemic levels. Year-over-year retail sales jumped 17.6% in February.

Hiring is also at an all-time high again and employment data released last week shows jobless claims are at their lowest level in 62 years. This means more people are returning to work, which should help their incomes grow.

An increase in income will therefore always help the retail trade and give more purchasing power to consumers. In addition, Americans managed to save a lot last year thanks to the fiscal stimulus, which helps them spend more.

Our choice

In this scenario, investing in retail stocks with a strong online presence makes sense. We have selected four actions for you. Each of the stocks carries a Zacks rank of No. 1 (Strong Buy) or 2 (Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

Nordström is a leading fashion specialty retailer in the United States. JWN offers a wide selection of branded and private label products, which are positioned in the premium segment of the industry. Nordstrom offers high-quality apparel, footwear, cosmetics and related accessories for men, women, young adults and children through a variety of channels.

Nordstrom’s expected earnings growth rate for the current year is over 100%. The Zacks consensus estimate for current-year earnings has improved 61.8% over the past 60 days. JWN sports a #1 Zacks rank.

Target company has grown from a simple brick-and-mortar retailer to an omnichannel entity. TGT has invested in technology, improved websites and mobile apps, and modernized the supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players. Target Corporation offers a range of products from household essentials and electronics to toys and apparel for men, women and children.

Target Corporation’s forecast earnings growth rate for the current year is 6.7%. The Zacks consensus estimate for current-year earnings has improved 9.3% over the past 60 days. TGT has a #2 Zacks rank.

Casey General Stores operates convenience stores under the Casey’s and Casey’s General Store names in 16 Midwestern states, primarily Iowa, Missouri and Illinois. CASY also operates two stores under the name “Tobacco City”, primarily selling tobacco and nicotine products, a liquor store, and a grocery store. Casey’s General Stores offers a variety of foods (including freshly prepared foods such as pizzas, donuts and sandwiches), beverages, tobacco and nicotine products, health and beauty products, supplies school supplies, household items, pet supplies and more.

Casey’s General Stores projected profit growth rate for the current year is 5.4%. The Zacks consensus estimate for current-year earnings has improved 2.7% over the past 60 days. CASY has a Zacks rank #2.

Tapestry is a designer and marketer of fine accessories and gifts for women and men in the United States and around the world. TPR offers lifestyle products including handbags, women’s and men’s accessories, footwear, jewelry, seasonal clothing collections, sunglasses, travel bags, fragrances and watches.

Tapestry reported better-than-expected results for the second quarter of fiscal 2022, driven by robust demand and strong customer engagement. TPR posted second-quarter adjusted earnings of $1.33 per share, beating Zacks’ consensus estimate of $1.19.

Tapestry’s forecast earnings growth rate for the current year is 22.9%. The Zacks consensus estimate for current-year earnings has improved 4.3% over the past 60 days. TPR has a #2 Zacks rank.

Wholesale Costco sells large volumes of food and general merchandise (including household products and appliances) at discounted prices from member warehouses. COST is one of the largest warehouse club operators in the United States. Costco Wholesale also operates e-commerce websites in the United States, Canada, United Kingdom, Mexico, Korea, Taiwan, Japan, and Australia.

Costco Wholesale’s projected profit growth rate for the current year is 17%. The Zacks consensus estimate for current-year earnings has improved 2.6% over the past 60 days. COST has a #2 Zacks rank.


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