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4 Retail Stocks to Spruce Up Your Portfolio as Holiday Sales Soar

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The holiday season, a crucial part of the year for retailers, turned out to be a blissful one as consumers filled their shopping carts. Even supply chain challenges, rising prices and the ongoing pandemic could not take away the sheen of the season. No doubt, retailers seemed to have addressed logistics and inventory issues well to meet the festive demand efficiently, be it offline or online.

Holiday Sales Remarkably Strong

Pent-up savings from stimulus payments and rising wages drove holiday retail sales. Eagerness among consumers to shop, be in-store or online, fueled demand across a diverse set of categories. Undeniably, supply-chain chaos and labor shortages did pinch retailers but they made every attempt to overcome the same.

A report by National Retail Federation (NRF) indicates that holiday retail sales, excluding automobile dealers, gasoline stations and restaurants, increased 14.1% year over year to $886.7 billion. The number exceeded NRF’s latest holiday sales projection of an increase of as much as 11.5%. The reported figure comfortably outpaced 2020’s year-over-year growth rate of 8.2%.

Meanwhile, the retail trade group also informed that online and other non-store sales grew 11.3% to $218.9 billion during the festive season, defined as Nov 1 through Dec 31. The group had forecast an increase of 11-15% in online and other non-store sales for the period.

The report highlighted a year-over-year increase in sales for myriad categories. Markedly, robust performance across Clothing and clothing accessory stores, Sporting goods stores, General merchandise stores, Furniture and home furnishings stores, and Electronics and appliance stores contributed to holiday sales. We also note that sales at Building materials and garden supply stores, Health and personal care stores, and Grocery and beverage stores were strong.

NRF chief economist Jack Kleinhenz said, “Worries about inflation and COVID-19 put pressure on consumer attitudes but did not dampen spending, and sales were remarkably strong. Even though many consumers began shopping in October, this was the strongest November and December we’ve ever seen.”

No wonder, the holiday season, which accounts for a sizable chunk of yearly revenues, is a make or break for retailers. Evidently, retailers have been channelizing their strength and making strategic investments to provide consumers fast, convenient and safe shopping experience.

That said, we have highlighted four stocks from the Retail - Wholesale sector that look well-positioned based on their sound fundamentals and earnings growth prospects. These stocks have either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Past Year Price Performance

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Zacks Investment Research

Image Source: Zacks Investment Research

4 Prominent Picks

Macy's, Inc. M, one of the nation’s premier omnichannel retailers, is a potential pick. The company has been benefiting from efforts undertaken as part of the Polaris Strategy, including boosting assortments, strengthening customer relations, accelerating digital growth, optimizing store portfolio and reducing costs. The company has been witnessing sturdy growth across all three brands namely, Macy’s, Bloomingdale’s and Bluemercury. Management is on track to strengthen omni-channel capabilities with investments toward online shopping experiences.

Macy's has a trailing four-quarter earnings surprise of 313.5%, on average. This Zacks Rank #1 company has an estimated long-term earnings growth rate of 12%. The Zacks Consensus Estimate for Macy's current financial year sales and EPS suggests growth of 39.6% and 320.4%, respectively, from the year-ago period.

You may invest in Ulta Beauty, Inc. ULTA. The company has been strengthening its omni-channel business and exploring the potential of both physical and digital facets. It has been implementing various tools to enhance guests' experience, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. Ulta Beauty focuses on offering customers a curated and exclusive range of beauty products through innovation.

Impressively, this beauty retailer and the premier beauty destination for cosmetics, fragrance, skincare products, hair care products and salon services has a trailing four-quarter earnings surprise of 76%, on average. We note that this Zacks Rank #1 company has an estimated long-term earnings growth rate of 16.5%. The Zacks Consensus Estimate for Ulta Beauty’s current financial year sales and EPS suggests growth of 39.8% and 268%, respectively, from the year-ago period.

We also suggest betting on Capri Holdings Limited CPRI. The company has been reinforcing its position in the luxury fashion space and looks to maximize the potential of Versace, Jimmy Choo and Michael Kors brands through expanded products and categories. It has been investing significantly in digital analytics and upgrading the e-commerce platform.

Capri Holdings’ bottom line has outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. This Zacks Rank #2 company has an estimated long-term earnings growth rate of 32.2%. The Zacks Consensus Estimate for Capri Holdings’ current financial year sales and EPS suggests growth of 33.2% and 181.1%, respectively, from the year-ago period.

You may bet on Costco Wholesale Corporation COST. The company’s growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its performance. Cumulatively, these factors have been aiding this operator of membership warehouses in registering an impressive comparable sales run. Costco has been rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in stores.

Costco has a trailing four-quarter earnings surprise of 8.3%, on average. This Zacks Rank #2 company has an estimated long-term earnings growth rate of 8.8%. The Zacks Consensus Estimate for Costco’s current financial year sales and EPS suggests growth of 10.9% and 14%, respectively, from the year-ago period.


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Macy's, Inc. (M) : Free Stock Analysis Report

Costco Wholesale Corporation (COST) : Free Stock Analysis Report

Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report

Capri Holdings Limited (CPRI) : Free Stock Analysis Report

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