3 Retail Stocks for the Q4 Shopping List
Retail stocks have already enjoyed a tremendous run off their March 2020 bottom. The SPDR S&P Retail ETF finished 2020 up 30% and has surged another 60% year-to-date.
Retailers were among the hardest hit companies at the onset of the pandemic. Those that endured prolonged store closures and lacked a strong online presence fared the worst.
Fast forward 18 months and the retail sector is thriving. Stores have reopened, customer traffic has returned, and the American consumer is spending. U.S. retail sales rose for the second straight month in September despite global supply chain constraints that are limiting product availability.
Heading into the all-important holiday shopping season, retailers still face supply shortages and the prospect that higher prices will crimp spending patterns. In the end, however, consumer strength will prevail according to the National Retail Federation. It projects that U.S. holiday sales will increase as much as 10.5% this year thanks to rising personal income and healthy household balance sheets.
Retail stocks have already enjoyed a tremendous run off their March 2020 bottom. The SPDR S&P Retail ETF finished 2020 up 30% and has surged another 60% year-to-date. So, are there any bargains left for investors? Here are three names that still have good upside potential for the rest of Q4 and beyond.
Is Shoe Carnival a Good Stock to Own?
Shoe Carnival (NASDAQ: SCVL) had a tremendous first half. Consumer demand for footwear and especially popular sneaker brands like Nike has created a circus-like shopping atmosphere at the retailer’s 377 locations and online storefront.
Though the first two quarters of 2021, earnings per share (EPS) was $3.05 which was more than twice the consensus estimate. Shoe Carnival has yet to report third-quarter results and although analysts have upped their forecasts, another sizeable beat wouldn’t be surprising.
As the saying goes, ‘if the shoe fits, wear it’. Investors should hop on this emerging growth story because Shoe Carnival offers an ideal mix of physical and e-commerce momentum. People love the carnival-like experience of in-store shopping complete with high-energy music, real-time promotions, and a ‘spin-n-win’ wheel. Shoe Carnival has turned sneaker shopping into an event which combined with a growing online business should continue to appeal to consumers of all ages, ethnicities, and income levels.
Is it a Good Time to Buy Abercrombie & Fitch Stock?
Abercrombie & Fitch (NYSE: ANF) is a growth and value play wrapped in one holiday package. The apparel retailer is poised to have another strong fourth-quarter performance due to the popularity of its namesake and Hollister brands as well as a booming digital business.
Earnings estimates have been far outpaced in each of the last few quarters largely because the Street hasn’t given enough credit to A&F’s online channels. Last quarter, mobile and website sales accounted for more than 40% of overall sales and are expected to remain strong as consumers shift to online shopping. And while most of A&F’s physical stores are in the U.S. it also has a growing footprint in Europe, Asia, and the Middle East.
The stock has pulled back from its all-time high due to industrywide concerns around supply chain disruptions and higher freight costs. This has created an opportunity to buy one of the strongest growth stories in retail at a value price.
A&F shares are trading at 10.5 forward earnings which is below its peer group average despite the company having above average fundamentals. More than $1 billion in liquidity and shrinking inventory levels are two things that separate it from the pack. Favor with its key Gen Z demographic also make this a trendy growth play heading into 2022.
Will ThredUp Report Good Q3 Results?
ThredUp (NASDAQ: TDUP) shareholders may be fed up of late with the stock trading back at its March 2021 IPO level. The online retailer of secondhand women’s and kid’s apparel has underwhelmed with its financial results thus far but deserves a second chance. After posting a steep loss in Q1 of this year, ThredUp’s bottom line has improved significantly due to better cost controls and a business model that is gaining traction in an up-and-coming niche.
Resale is the fastest-growing corner of the clothing market and ThredUp has developed a unique platform where buyers and sellers are one in the same. Although there are negative connotations with ‘pre-owned’ clothing, consumers are finding it to be a great place to find high-quality merchandise at a fraction of the price. The average item sells for $18 but the prices and product assortment vary widely Consumers also like the ‘green’ nature of the business which makes it a compelling sustainability investment.
There is also plenty of growth to be had here as ThredUp benefits from its leadership position in resale clothing. Revenue growth and gross margins accelerated to 27% and 34% respectively, last quarter. If the company can build off this momentum when it reports third quarter results after the close on November 8th, the stock could regain credibility fast.
Wall Street has largely supported ThredUp despite its slow start. Over the last month, three firms have called the stock a ‘buy’ with price targets ranging from $23 to $35. Eventually, consumers may get fed up with rising prices, which makes ThredUp an interesting play on the secondhand economy.