Barclays sees a ‘reset’ in U.S. retail but ‘not a recession yet’

Barclays analyst Seth Sigman assumed coverage of select stocks in the U.S. Broadlines, Hardlines, & Food Retail space with a Neutral industry view. The sector balances a positive structural view of this group post-pandemic along with a relatively stable consumer backdrop against pockets of cyclical risk and strong year-to-date stock moves, the analyst tells investors in a research note. The firm also notes that supply/demand dynamics have supported record margins normalizing, adding that it has greater preference for stocks with "defensive characteristics". Barclays says Walmart (WMT) tops its list in terms of preference as it also has numerous incremental growth drivers as its initiatives around assortment, service, and convenience that positioned the company to gain share in stores and online. The firm is positive on Autozone (AZO) and its ability to sustain growth and benefit from inflation in 2023 as well as Tractor Supply (TSCO), which "has evolved into a top-tier retail name with above-average store growth and a greater focus on improving productivity of its existing assets". Barclays is also positive on Five Below (FIVE), which it views as one of the most differentiated concepts in retail with a clear roadmap to above-average unit and comps growth, as well as Driven Brands (DRVN), which it sees as a leading automotive services company in North America offering one of the best unit growth opportunities in our space. The above names are assumed with an Overweight rating. Barclays is more cautious on Floor & Decor (FND) and Advance Auto Parts (AAP), which it rates at Underperform. For FND, Barclays states it would need to see a significant rest of consensus sales and margin estimates to consider becoming more constructive. For Advance Auto Parts, the firm cites the company’s continued underperformance and challenges balancing sales and margins.