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Retail Stocks Show Mixed Earnings; Here are the Top Performers
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Retail Stocks Show Mixed Earnings; Here are the Top Performers

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Despite macroeconomic headwinds, COST and ULTA reported solid results. On the other hand, the performance of GPS and AEO was impacted by rising inflation and cost pressure.

So far retail stocks have posted mixed performances. Amid macro headwinds, including rising costs and inflationary pressures, along with consumer uncertainty, some retailers have weathered the storm and posted strong results. Meanwhile, others have borne the brunt of headwinds and remained in murky waters disappointing investors. 

After posting stellar quarterly performance, shares of Ulta gained more than 7% in extended trading on Thursday. Meanwhile, American Eagle and Gap plunged 11.6% and 13%, respectively, on disappointing results and subsequent weak outlooks. Despite decent results, Costco fell more than 2% post-hours after rising 5.65% at yesterday’s close. 

Let’s scan these companies’ quarterly performances and future expectations. 

Costco Wholesale Corporation (NASDAQ: COST

Washington-based Costco Wholesale Corporation operates a chain of membership-only warehouse clubs. It sells groceries, appliances, toys, sporting goods, books, housewares, and apparel, among others. 

The discounter reported better-than-expected total revenue of $52.6 billion in the third quarter of Fiscal 2022 (ended May 8), topping the consensus estimate of $51.56 billion. Revenue rose 16% on a year-over-year basis. Meanwhile, earnings of $3.04 per share met analysts’ expectations and jumped 10.5% from the prior-year quarter. 

During the quarter, comparable sales rose 14.9% year-over-year across all regions. Remarkably, U.S. comparable sales were up 16.6%, while e-commerce sales increased 7.4% from the same quarter last year. Excluding gasoline prices and foreign exchange rates impact, overall comparable sales grew 10.8%, with U.S. comparable sales surging 10.7%. 

Membership fees rose to $984 million, up 9.2%. During the call, management said, “Given the current macro environment, the historically high inflation and the burden is having on our members and all consumers in general, we think increasing our membership fee today ahead of our typical timing is not the right time.” 

Following the results, Citigroup analyst Paul Lejuez reiterated a Hold rating on the stock and lowered the price target to $510 (9.68% upside potential) from $590.  

Lejuez opined that the company’s strong results eased concerns about supply-chain challenges. According to the analyst, Costco succeeded in weathering higher costs and reflected strong customer engagement.  

Meanwhile, Lejuez believes that the company’s valuation multiple “leaves little room for error.”

Shares of Costco have rallied 20.8% over the past year, while the stock scores a Strong Buy consensus rating, based on 16 Buys versus four Holds. That’s alongside an average Costco price target of $590.60, which implies 27.01% upside potential to current levels.  

Additionally, TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Costco, with 4.2% of investors maintaining portfolios on TipRanks increasing their exposure to COST stock over the past 30 days. Furthermore, 1.4% of these individuals have increased their holdings in the recent week.   

Also, Costco scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations. 

Overall, the stock could be an attractive buying opportunity based on high analyst ratings, price performance, strong results, and TipRanks’ tools. 

Ulta Beauty, Inc. (NASDAQ: ULTA

Riding on strong demand for beauty products, the beauty retailer Ulta Beauty posted upbeat first-quarter Fiscal 2022 results and provided a strong outlook.  

The company recorded earnings of $6.30 per share, beating analysts’ expectations of $4.46 by a wide margin. Also, net sales of $2.3 billion surpassed the Street’s estimates of $2.12 billion. Remarkably, growth in comparable sales and margins acted as tailwinds. 

Encouragingly, management updated guidance for 2022. Now, net sales are expected in the range of $9.35 billion to $9.55 billion on comparable sales growth of 6% to 8%. Additionally, the EPS range is upped to $19.20 to $20.10 for the year. Margins are also expected to improve, while expected share repurchases of $900 million are reiterated. 

Following the results, Piper Sandler analyst Korinne Wolfmeyer maintained a Buy rating on Ulta and lifted the price target to $485 (28.32% upside potential) from $465. 

Based on the company’s recent business trends, Wolfmeyer believes that Ulta has upside potential “as one of the more resilient names in beauty continues to grow and scale.” 

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 12 Buys and five Holds. The average Ulta price target of $450.31 implies 19.14% upside potential. Shares have gained more than 15% over the past year. 

The earnings results were evident on TipRanks’ new tool that measures visits to Ulta’s website. According to the tool, in Fiscal Q1 2022, total estimated visits on ulta.com showed an increasing trend, on a global basis, representing a 29.23% jump year-over-year. The predictions turned out to be correct, with Ulta reporting upbeat results in the quarter. 

What’s more, TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Ulta is currently Positive, as the cumulative change in holdings across all 13 hedge funds that were active in the last quarter was an increase of 41,300 shares. Also, Ulta scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations. 

Amid the current volatile economic environment, Ulta seems to be a long-term winner. The company reflects strong price gains, robust results, and hedge fund confidence. Additionally, vigilance on website trends reflected on TipRanks’ Website Traffic Tool could assist in making prudent investment decisions. 

The Gap, Inc. (NYSE: GPS

The Gap is the largest specialty apparel company in the United States. Its portfolio of lifestyle brands includes Old Navy, Gap, Banana Republic, and Athleta. 

Bearing the brunt of elevated costs and rising inflation, the retailer posted lower-than-expected results for the first-quarter Fiscal 2022 and provided disappointing guidance for Fiscal 2022.  

Net sales of $3.5 billion plunged 13% year-over-year and missed analysts’ expectations of $3.58 billion. Comparable sales declined 14%, while online sales plummeted 17%. Gap reported a loss of $0.44 per share, which came in much higher than the Street’s estimated loss of $0.15. Also, the company recorded lower margins. 

Given the challenges at its Old Navy unit, inflationary pressures, and uncertain consumer demand, the company lowered its fiscal-year guidance.

For Fiscal 2022, the company now expects revenue to decline in the low to mid-single-digit range on a year-over-year basis. Adjusted EPS is predicted in the range of $0.30 to $0.60, down from the prior range of $1.85 to $2.05. The consensus estimate is pegged at $1.30. 

Looking forward, Gap’s CFO Katrina O’Connell commented, “We expect our performance to improve modestly in the back half of the year and accelerate as we enter fiscal 2023.” 

Unimpressed with the results, Morgan Stanley analyst Kimberly Greenberger downgraded Gap to a Sell from a Hold and reduced the price target to $8 (28.06% downside potential) from $13. 

Amid current industry headwinds, Greenberger expects earnings to disappoint further.

Overall, the stock has a Hold consensus rating based on three Buys, nine Holds, and five Sells. That’s after a 38.53% slide in Gap’s share price year-to-date. The average Gap price target of $13.46 implies 21.04% upside potential.  

According to TipRanks’ Website Traffic Tool, in Fiscal Q1 2022, total estimated visits on gap.com showed a decreasing trend, on a global basis, representing a 10.94% drop year-over-year and 14.86% sequentially. The predictions turned out to be correct, with Gap reporting disappointing results in the quarter. 

In the current scenario, based on the company’s performance, price losses, and website trends, investors should exercise caution before taking any investment decision.  

American Eagle Outfitters, Inc. (NYSE: AEO

American Eagle Outfitters, a multi-brand specialty retailer, reported first-quarter fiscal 2022 earnings that fell short of expectations. Results were negatively impacted by increasing supply chain costs, elevated inventory, and other inflationary pressures. 

Total net revenue reported was $1.06 billion, up 2% year-over-year, but missed analysts’ estimates of $1.2 billion. Earnings of $0.16 per share disappointed investors falling short of analysts’ expectations of $0.25. Additionally, margins were on the downside. 

Subsequently, the company provided a weak outlook for the June quarter and lowered expectations for the year. For 2022, the company projects operating profit to be more than the Fiscal 2019 figure of $314 million, with total revenue to record growth in the low single digits compared to Fiscal 2021. 

For Q2, management expects top-line levels to remain similar to the first quarter’s levels, representing a gross margin of about 33%. 

According to the company’s press release, “The company expects to enter the second half better aligned with demand, with a more balanced inventory position and leaner expense base, driving improved margins and profitability relative to the first half.” 

Post Q1 results, Deutsche Bank analyst Gabriella Carbone maintained a Buy rating on the stock but lowered the price target to $15 (6.99% upside potential) from $30.

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on six Buys and seven Holds. The average American Eagle price target of $24.62 implies 75.61% upside potential. Shares lost almost 44% year-to-date.

Meanwhile, hedge funds have been buying AEO stock. According to TipRanks’ Hedge Fund Trading Activity tool, hedge funds bought 351,200 AEO shares in the last quarter. Further, AEO stock scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations. 

Following management’s optimistic comments and TipRanks’ tools indications, investors buying the dips could consider adding the stock to their portfolio. 

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