Are Retail Stocks A Buy After Earnings?

Retail stocks have come into focus on Wall Street this week as several major retailers provide updates on their latest financial reports.

a figure of a shopper standing on top of a credit card

Source: Shutterstock

With Omicron cases rapidly falling across the country, consumers are in a better mood and are keeping up their spending. The Commerce Department recently reported that retail sales rose 3.8% in January from the month prior, which was well ahead of analysts’ estimates for 2.1% growth.

That was the largest monthly increase since last March when Americans began receiving their $1,400 federal stimulus checks at the beginning of the pandemic. And spending was widespread. General merchandise store sales climbed 3.6%, while sales at furniture and home furnishings stores rose 7.2%. Sales at department stores increased 9.2% and online sales jumped 14.5%.

So, it appears consumers are still able to increase spending as inflation runs rampant.

The situation bodes well for retailers with fundamentally superior sales and earnings and positive forward-looking guidance.

Case in point: Target (NYSE:TGT).

Shares soared nearly 12% out of the gates on Tuesday morning in the wake of the company’s stunning fourth-quarter and full-year 2021 earnings announcement. The retail giant noted that sales have increased by more than $27 billion since 2019, with digital sales growth of almost $13 billion.

In turn, Target achieved better-than-expected earnings in 2021.

For its fiscal year 2021, Target reported adjusted earnings of $13.56 per share and total revenue of $106 billion, which represented 44% annual earnings growth and 13.3% annual revenue growth. Analysts were expecting full-year adjusted earnings of $13.25 per share on $106.42 billion in revenue.

The fourth quarter certainly capped off the year, with revenue growing 9.4% year-over-year (YOY) to $31 billion.

Comparable sales in the fourth quarter, including stores open at least a year and digital channels, increased 8.9% from a year prior, below the 10.5% gain expected by analysts. Traffic to Target’s stores and website rose 8.1%, while the average transaction increased less than 1%.

Fourth-quarter adjusted earnings rose 19.2% YOY to $3.19 per share, up from $2.67 per share in the same quarter a year ago. The consensus estimate called for adjusted earnings of $2.86 per share on $31.39 billion in revenue, so Target posted an 11.5% earnings surprise and a slight revenue miss.

Company management commented, “Our strong fourth-quarter performance capped off a year of record growth in 2021, reinforcing the durability of our business model and our confidence in long-term profitable growth.”

Target has been beating competitors like Walmart (NYSE:WMT) at their own game as it has steadily ramped up its online and same-day pickup services. Sales for the company’s same-day, online services, including its curbside pickup service, Drive Up, its in-store retrieval of online purchases service, Order Pickup, and its home delivery service, Shipt, skyrocketed 45% in the fiscal year, following growth of 235% in 2020.

This fall, Target will begin testing an option in certain markets to add a Starbucks (NASDAQ:SBUX) order to a pickup order. Customers will also be able to make a return within Target’s app, as well as choose from an expanded list of “backup items” to more fully complete their orders.

The company in January also declared a quarterly dividend of $0.90 per common share, which represented the 167-consecutive dividend Target has paid shareholders.

Given its strong dividend history, let’s see how the company stacks up in my Dividend Grader.

As you can see in the Report Card above, the stock earns a Total Dividend Grade of “A,” with an “A” for its Dividend Trend and a “B” for its Quantitative Grade, representing institutional buying pressure under the stock. It also has a 1.8% dividend yield.

So, Target is a “Strong Buy” right now. I’d also like to note that the stock also earns a B-rating in Portfolio Grader for its Total Grade, which makes it a nice blend of income and growth.

Target’s shares have soared over 147% since mid-March 2020, since health officials declared the COVID-19 pandemic, compared to the S&P 500’s 90% gain.

I recommended Target to my Platinum Growth Club subscribers back in December 2020 as an Elite Dividend Payer.

Of course, Target isn’t the only fundamentally superior retailer in my exclusive Platinum Growth Club Model Portfolio at the moment.

Take Boot Barn Holdings (NYSE:BOOT).

The company is prospering from a more confident U.S. consumer and rising retail sales, as the company operates more than 200 retail stores in 33 states. Specifically, Boot Barn Holdings offers more than 8,000 different styles of boots — from western boots to work boots to hiking boots — as well as clothing, jeans, hats, belts, jewelry and accessories. And its products are from well-known brands like Carhartt, Wrangler, Ariat, Resistol, Montana Silversmith and Justin.

In late January, BOOT topped analysts’ expectations for its third quarter in fiscal year 2022. The footwear retailer achieved third-quarter earnings of $69.2 million, or $2.27 per share, on $485.9 million in sales, which topped analysts’ estimates for earnings of $2.22 per share and sales of $483.1 million.

Company management noted, “We increased top-line sales in excess of 64% in each of the first three quarters of fiscal 2022 compared to pre-pandemic levels two years ago and surpassed $1.0 billion in sales for the first nine months of this fiscal year, which is greater than any full-year period in the company’s history.”

BOOT is also currently rated a “Buy” in my Portfolio Grader, as you can see below.

The company boasts a strong Fundamental Grade of “B,” a Quantitative Grade of “B” and an “A” for earnings growth. I recommended the stock to my Breakthrough Stocks subscribers back in August 2021 and it’s still a good buy at its current price.

I look for Target and Boot Barns to continue to do well in the coming months as folks ramp up their spending, but these aren’t the only retail stocks I like right now. There are several other retailers I own across my Navellier services — all of which my Platinum Growth Club subscribers have full access to.

For full details on these names, simply click here to become a member of my Platinum Growth Club. As I mentioned,  you will have full access to all of my stock services — Growth InvestorBreakthrough Stocks and Accelerated Profits — which totals to more than 100 stocks, as well as my Power Options service. This options service focuses solely on LEAPS (Long-Term Equity Anticipation Securities) call trades. These are a great investing vehicle to turbocharge your portfolio.

Of course, you don’t have to invest in all 100+ stocks. If you’d rather start small, I have you covered there, too. My Platinum Growth Club also comes with my exclusive Model Portfolio. I handpick all of my Model Portfolio recommendations from my different services, so you can rest assured that you’re always invested in the crème de la crème.

I should add that it’s a great time to join. I just released my March Monthly Platinum Growth Club update on Tuesday. In the issue, I added nine new stocks to my Model Portfolio that boast superior sales and earnings. I also highlighted my Top Stocks for March from each of my services.

Again, as a Platinum Growth Club subscriber, you will have complete access to all of this information, as well as every Weekly Update, Monthly Issue, Flash Alerts, Live Chat events, and much more. Sign up here now so you don’t miss out!

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Target Corporation (TGT), Boot Barn Holdings, Inc. (BOOT)

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