The prospect of adding shares of retail companies that weren't considered "essential businesses" was almost unthinkable a year ago, as the pandemic kept shoppers at home and caused big issues for the majority of retailers that generate revenue with physical stores. Fast forward a year later and the story surrounding companies in the retail industry has improved dramatically. Thanks to the widespread distribution of vaccines, relaxed social distancing restrictions, and improving consumer spending, many of these stocks are nicely positioned to outperform in the near term.
Investors should note that many major retailers were forced to cut costs and focus on digitizing their businesses over the last year, which are both moves that could handsomely reward shareholders in the long term. While it's very important to be selective with retail stocks given how e-commerce trends are rendering many of their businesses obsolete, there are certain companies that are leaps and bounds above the competition and worthy of a place in any portfolio.
If you are interested in the retail sector at this time, here are the 3 best retail stocks to shop for in August:
1. Ulta Beauty
Ulta Beauty (NASDAQ:ULTA) is perhaps one of the most attractive retail stocks to buy in August for two big reasons. First, the largest beauty retailer in the U.S. will report its Q2 earnings on Aug. 25, which could mean that the stock rallies up into the release. This is a particularly interesting earnings report for the company as Ulta delivered record Q1 results that saw the company's sales and earnings eclipse its Q1 figures for both 2020 and 2019. The company also raised its outlook for FY 2021 in Q1 and faces relatively easy comparisons from last year, which means the Q2 report could be another strong one for Ulta.
Additionally, investors should be intrigued with Ulta this month as the company is officially launching its Ulta Beauty at Target (NYSE:TGT) partnership. The company plans to roll out these industry-first shopping destinations in over 100 Target stores nationwide by the end of the year and could be a great way for the company to attract new consumers. With the stock fairly close to reaching new all-time highs and these potentially bullish catalysts in August, this is certainly a retail name to keep an eye on this month.
2. Lululemon
Athletic leisure apparel companies like Lululemon are some of the strongest businesses in retail, and with the stock’s recent breakout past the $400 per share mark there could be plenty of price upside to come for the stock. The company offers high-quality apparel including pants, shorts, tops, and jackets designed for athletic activities like yoga, running, and training and has created a very strong brand presence over the years. Keep in mind that consumer preferences have changed dramatically since the pandemic, and now there are tons of people who favor comfortable clothing for both working and working out at home.
Lululemon (NASDAQ:LULU) is also attractive given the company’s strong gross margins, which are among the best in retail. With over 56% gross profit margin in 2020, which is higher than competitors like Nike (NYSE:NKE), it’s clear that Lululemon’s premium products command premium prices. The company also has plenty of opportunities to expand outside of the United States and to expand its product offerings for the male demographic, which means there is still room for growth here. The bottom line here is that Lululemon is one of the most impressive stocks in the apparel sector and a great retail stock to consider adding in August.
3. Costco Wholesale Corporation
Finally, we have this membership warehouse giant that is among the most impressive businesses in the world and a stock that has been trending nicely over the last few months. There are several reasons to believe that the path of least resistance for the stock is up in August, particularly when you consider the fact that the company just reported July net sales results of $176.3 billion, an increase of 17.8% year-over-year. This is incredibly impressive given that last year companies like Costco (NASDAQ:COST) were benefitting from panic-buying and massive sales bumps due to the pandemic.
With market breadth currently iffy, it might make sense to stockpile shares of Costco given that the stock tends to perform well during volatile periods in the market. It’s also an attractive retailer given that the company’s products see steady demand in any economic environment. There’s a lot to like about Costco’s membership-based business model, which encourages customer loyalty and strong renewal rates. This is the ideal retail stock to buy on dips in August and certainly a great option for long-term investors that only want to own the best companies in the sector.