The Retail Sector Gives The Market What It Wants
The retail sector came into sharp focus this week with reports from the bulk of the group. The general trend is that results are better than expected and the companies are guiding the 3rd quarter and the second half of the year higher. Headliners like Walmart (NYSE:WMT) and Target (NYSE:TGT) are getting the bulk of the attention but there are others out there performing just as well. Today's lineup is a group of 3 retail stocks well-positioned for the second half of the year and leveraging their strengths to succeed.
1. Macy's Comes Back Strongly
It took Macy’s (NYSE:M) quite a few quarters to bounce back from its pandemic-induced slump but bounced back it has. The company's latest earnings report reveals business returned to pre-pandemic levels exceeding expectations by 1300 basis points. The results were so strong the company resumed its share repurchase program, reinstated the dividend, and guided the market higher.
The guidance, really, is enough to get the stock moving, the buyback and dividend are icing on the cake. Macy's is expecting revenue strength to continue and raised guidance for the second time this year. The new guidance has revenue in the range of $23.55 billion at the low end compared to the prior range with revenue closer to $22.25 billion at the high end. Regardless, the guidance is well above the analyst consensus and is helping to drive positive sentiment in the stock.
Looking forward, we think that Macy's guidance may be cautious. Among other initiatives, the company recently inked a deal with the Toys R Us brand owner to list Toys R Us products on its website and on its shelves. This is a big move for both names and should help drive traffic for both companies. Shares of Macy's surged 15% on the earnings news but this is just the first leg of a much larger movement ahead. The stock is now breaking above significant resistance into a multi-year high that could lead to triple-digit gains over the course of the next two to three quarters.
2. Kohl’s Advances 6% On Strong Earnings
The price action in Kohl's (NYSE:KSS) is lagging Macy's but no less vigorous for the difference. Shares are up more than 6% in the wake of its earnings report which reveals rising store traffic, improving profitability, and accelerating trends. The company reported revenue grew by 30.5% over last year to beat the consensus by 1000 basis points and exceed the two-year comparison. Better, EPS more than doubled on both a GAAP and adjusted basis on the combination of strong traffic, high turnover, and a reduced discounting environment. Kohl's reinstated its dividend three quarters ago but to a greatly reduced rate compared to the pre covid level. These results put it on track for a significant dividend increase as soon as the next declaration.
3. Petco Health And Wellness Company Puts In A Bottom
The price action in Petco (NASDAQ:WOOF) is not nearly as active as that of Macy's or Kohl's but it is no less significant. The company appears to be putting in a bottom after a rocky start to its life as a publicly traded company. In support of the news are the Q2 results would show growth, better-than-expected performance, and better than expected guidance. The company produced $1.43 billion in revenue for a gain of 18.2% over last year beating the consensus by 930 basis points. More importantly, revenue is up 31% versus the same time frame 2 years ago and growth is in the forecast. The company is now expecting to see full-year revenue and earnings in a range above the previous range and the consensus estimates which is a net-positive and possibly cautious in light of pet care trends and the US.
