U.S. markets closed
  • S&P 500

    3,639.66
    -104.86 (-2.80%)
     
  • Dow 30

    29,296.79
    -630.15 (-2.11%)
     
  • Nasdaq

    10,652.40
    -420.91 (-3.80%)
     
  • Russell 2000

    1,702.15
    -50.36 (-2.87%)
     
  • Crude Oil

    93.20
    +4.75 (+5.37%)
     
  • Gold

    1,701.80
    -19.00 (-1.10%)
     
  • Silver

    20.16
    -0.50 (-2.42%)
     
  • EUR/USD

    0.9743
    -0.0052 (-0.54%)
     
  • 10-Yr Bond

    3.8830
    +0.0570 (+1.49%)
     
  • GBP/USD

    1.1098
    -0.0071 (-0.63%)
     
  • USD/JPY

    145.3300
    +0.2620 (+0.18%)
     
  • BTC-USD

    19,555.92
    -384.12 (-1.93%)
     
  • CMC Crypto 200

    445.50
    -9.53 (-2.09%)
     
  • FTSE 100

    6,991.09
    -6.18 (-0.09%)
     
  • Nikkei 225

    27,116.11
    -195.19 (-0.71%)
     

2 Retail Titan Stocks for Investors to Shop

·4 min read

As the summer ends, there will be a few retailers that won’t be left in the cold with the holiday season approaching. From cosmetics products to apparel, consumers will add to their shopping list as we get closer to Thanksgiving and into the Christmas season.

Let’s take a look at two stocks with loyal customer bases and rising earnings estimate revisions that appear to be inflation-fighting titans.

Lululemon (LULU)

As we transition to the fall, products from clothing and apparel giant Lululemon will certainly make their way onto consumers wish lists. Lulu’s assortment of apparel includes shorts and tops, along with fitness pants and jackets that will be popular during cooler months.

Lululemon currently sports a Zacks Rank # 2 (Buy) with EPS estimate revisions on the rise. LULU recently blasted away second quarter earnings expectations by 18% with earnings of $2.20 a share. This provided a further catalyst for the stock. Lululemon is an inflation-fighting stock, as the company has not seen a slowdown in consumer spending. In fact, second quarter sales were up 5% to $1.86 Billion. Third quarter sales are also expected to rise another 24% year over year to $1.80 billion.

Annual earnings are now projected to be up 26% this year to $9.81 a share, based on Zacks estimates. Fiscal 2023 earnings are expected to climb 16%. Top line growth continues to rise as well. Sales are now expected to be up 26% in 2022 and another 14% in FY23 to $9.06 billion. Also, LULU has beat earnings expectations for nine consecutive quarters.

Year to date, LULU is up 12% while the S&P 500 is down 16%. As the rising estimate revisions allude to, there may still be more upside ahead. Lululemon’s average Zacks price target of $390.04 offers 14% upside from current levels.

Image Source: Zacks Investment Research

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Despite being up 12% YTD, LULU is still 30% off its 52-week highs seen last November. Even with its most recent rally, Lululemon’s forward P/E is still below its five-year high of 94X and median of 40.4X. LULU’s forward P/E of 34.3X is well above the industry average of 10.7X. However, Wall Street has been willing to pay up for the athleisure firm’s impressive growth. Rising estimate revisions continue to support investors that are willing to pay a premium for LULU.

The company’s long-term outlook also remains strong, with international expansion one of the key pillars to Lululemon’s “Power of Three x2 growth plan.” CEO Calvin McDonald stated the plan calls for the quadrupling of LULU’s business from 2021 levels by the end of 2026. Lululemon’s revenue in Europe has increased 22% on a one- and three-year CAGR basis. Lululemon is now operating 40 stores and five websites in Europe.

McDonald also pointed to the strength of LULU’s loyal high-income customers, with store traffic up 30% during the second quarter without the help of markdowns or price promotions.

Ulta Beauty (ULTA)

Ulta offers a wide range of products from cosmetics and fragrance to skincare and hair care. Ulta also taps into consumers looking for bath and body products.

Ulta’s stock has fared well this year compared to its peer group which is down 32%. ULTA, on the other hand, is up 8% YTD to outpace the benchmark. Over the last five years, ULTA is up a very respectable 95% vs. the S&P 500’s 80%.

ULTA recently hit 52-week highs of $448.29 a share and looks poised to reach higher highs, with its average Zacks price target offering 10% upside.  ULTA has a forward P/E of 20.7X against the industry average is 12.5X.

Even after reaching 52- week highs, we can see from the nearby chart that ULTA’s P/E is still well below its high over the last five years of 80.7X and the median of 25.2X.   

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Plus, next year’s earnings are expected to grow 9% to $23.37 a share, based on Zacks estimates. Fiscal 2022 sales are projected to be up 13% this year and another 7% in FY23 to $10.57 billion. Ulta has seen sales growth for eight straight quarters.

Rising earnings estimates indicate that Ulta Beauty products will likely continue to remain must-haves for consumers heading into the holiday season. ULTA has an overall “B” VGM grade and currently lands a Zacks Rank #1 (Strong Buy).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
 
lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research