2 ‘Strong Buy’ Retail Stocks Poised to Benefit from Holiday-Shopping Boost
Like most things, the holiday shopping season has its fans and detractors. Some people love the yearly fanfare, while amongst us are some who really, really don’t. However, most will get in on the action at some point over the next few weeks, as the average American is expected to spend roughly $700 on gifts during the holiday season.
Naturally, this time of year is a boon for retailers, who stand to make the most of the annual shopping bonanza. According to eMarketer, this year, total US retail sales are expected to grow 3.8% to over $1 trillion, marking 2019 as the first-ever trillion-dollar holiday season. Additionally, US retail ecommerce holiday spending will rise 13.2% to $135.35 billion.
So, putting on our winter gloves, and warming to the theme, we opened the TipRanks’ Stock Screener tool to look for 2 retail stocks to add to your holiday wish list, particularly ones with enough Street support to earn a “Strong Buy” consensus rating.
Aritzia (ATZAF)
Canadian women’s clothing retailer Aritzia is one of the trendiest names in fashion right now. That being said, its novel approach involves bucking the trend.
While competitors reduce costs and close down locations, the chain of boutiques’ strategy of opening stores and staffing them with style guides is paying off, as six consecutive quarters of double-digit revenue growth can attest.
The company’s brand of aspirational ‘everyday luxury’ items, has some high-profile celebrities among its fans, including the Duchess of Sussex Meghan Markle, Hailey Bieber, and Kendall Jenner.
The company posted better than expected fiscal Q2 results, and halfway down fiscal 2020 has delivered 17.6% total revenue growth and 8.2% SSS (same store sales) growth, driven by both ecommerce and the company's physical retail network, with all regions and geographies contributing to the expansion.
Noting Aritzia’s ongoing investments in talent, infrastructure, and marketing initiatives along with increased geographic reach, RBC Capital’s Irene Nattel opined, “ATZ's unique product offering, strong quality-for-price positioning, continually enhanced assortment and aspirational shopping experience continue to resonate with its core customer segment in both existing and new markets. Higher sales volumes and work on sourcing terms are enabling ATZ to maintain stable gross margins (annual basis) despite rising raw material costs.”
Nattel reiterated an Outperform rating on Aritzia, alongside a price target of C$25.00 (USD$18.89). Should this scenario play out, gains of almost 35% could be lining investors’ pockets in the new year. (To watch Nattel’s track record, click here)
All in all, the Street likes what’s on offer in the retailer’s shop window, too. Although only 3 analysts have chipped in with an opinion over the last 3 months, all consider Aritzia a Buy. A Strong Buy analyst consensus, alongside an average price target of $19.25, indicates upside potential of 38%. (See Aritzia's price targets and analyst ratings on TipRanks)
Bj's Wholesale Club Holdings (BJ)
In contrast to Aritzia, and indeed to competitors such as Walmart and Costco, regional warehouse retailer BJ's Wholesale Club’s latest earnings report was a mixed affair.
Same-store sales were up by 1.1%, less than the previous quarter’s 1.6%. Taking into consideration Costco’s 6% increase in recent quarters, and Walmart’s 3% gains over the last year, the results are a slight let-down for the company. On the plus side, EPS came in at $0.41, slightly beating the Street’s estimate of $0.40. Additionally, this was the fifth consecutive quarter in which the retailer’s EPS beat the estimates. The quarter also ended with the highest percentage of paid members in BJ's history, while the percentage of members acquired through digital channels doubled.
The company’s initiative to reposition the business for sustainable growth is an ongoing process, and management has reiterated “we're disrupting just about everything we do in order to create a better long-term algorithm on [growth].” BJ's efforts to streamline its product offerings in areas like consumer electronics and its grocery section, come alongside adjustments in promotional spending.
Evercore ISI’s Michael Montani remains cautiously upbeat, noting, “BJ’s is taking action to enhance customer service and long term competitive positioning, but 3Q comp and traffic moderation are a reminder that turnarounds aren’t linear… We believe the stock trading at a 13.5-14.5x CY20 P/E offers an attractive entry point for defensive growth at a sub-market multiple, with a more routine 2-3% comp algorithm likely to unfold once the grocery re-assortment initiatives take hold in 6-9 months.”
To this end, Montani reiterated an Outperform rating on BJ’s. (To watch Montani’s track record, click here)
Net net, heading into the holidays, the Street is rather bullish on BJ’s prospects. The consensus is that the warehouse retailer is a Strong buy, with a breakdown of 10 Buy ratings and 1 Hold. An average price target of $29.50 could result in handsome gains of 27%. (See Bj’s stock analysis on TipRanks)
