The U.S. Commerce Department reported that retail sales in June remained unchanged, countering concerns about the economy entering a recession. The stability in retail sales –and, by extension, retail stocks — was primarily due to a balance between a decline in auto dealership receipts and robustness in other sectors, suggesting a resilient consumer base and supporting a positive outlook for economic growth in the second quarter.
The department’s findings also indicated that retail sales in May were higher than initially estimated, which did not alter the anticipation that the Federal Reserve might begin reducing interest rates in September due to a cooldown in inflation. This data provided some relief from the apprehension of a sharp economic slowdown.
According to the Commerce Department’s Census Bureau, the steady retail sales in June came after a revised increase of 0.3% in May. This performance surpassed the expectations of economists who had predicted a 0.3% drop in retail sales for June, following a previously reported 0.1% rise in May.
On a year-on-year (YOY) basis, retail sales in June saw a 2.3% increase. Here, we look at three retail stocks to buy and take advantage of the still-hot U.S. economy.
Costco (COST)
Costco’s (NASDAQ:COST) membership-based model, bulk sales and focus on value attract a loyal customer base. Costco’s focus on efficiency and cost control enhances its profitability, offering stability and long-term growth potential for retail stocks.
In a move that sent the stock higher, Costco announced an increase in its annual membership fees for both Gold Star and Business memberships in the United States and Canada, marking the first increase since 2017. The standard membership cost will rise from $60 to $65, while the higher-tier Executive Membership will see a jump from $120 to $130.
The membership price adjustment is scheduled to take effect on September 1. This change is set to impact the nearly 52 million members of the retail giant, with approximately half of them enrolled in the Executive plan. Alongside the fee increase, Executive members will benefit from an enhanced maximum annual reward, which will be raised from $1,000 to $1,250.
Costco’s decision to adjust its membership pricing comes after a period of seven years, with the previous increase implemented in 2017. At that time, the base Gold Star membership was raised from $55 to $60, and the Executive plan went from $110 to $120. The company operates a total of 882 stores globally, including 609 in the U.S. and Puerto Rico and 108 in Canada.
The membership fee hike is part of Costco’s strategy to augment revenue while offering additional cost-saving advantages to its members. This is another reason why investors should seriously consider holding COST stock as a long-term portfolio asset.
Target (TGT)
Target (NYSE:TGT) combines a broad product range with a strong online presence, appealing to a diverse consumer base. Its focus on private-label brands and innovative store layouts drives customer loyalty and makes TGT a solid investment in the retail sector, influencing the broader retail stocks market.
Recently, Target stock saw its rating lifted at Citi (NYSE:C), with this Wall Street investment bank turning positive on the company’s outlook. Citi upgraded the rating to Buy and established a new price target for the retailer’s shares at $180.
Citi’s upgrade is based on its positive view of Target’s potential to enhance its EBIT margins in the fiscal year 2024. The analysts noted Target’s position as a strong player in the retail sector and its margin improvement opportunities, especially in the coming fiscal year.
Despite experiencing inconsistent performance throughout 2022 and 2023, Target is now believed to be on firmer ground. Citi analysts have recognized the retailer’s effective inventory management and anticipate more favorable sales comparisons starting in the second quarter of 2024.
Dick’s Sporting Goods (DKS)
Dick’s Sporting Goods (NYSE:DKS) is a leading retailer in the sporting goods industry, benefiting from the growing interest in health and fitness. Its omnichannel approach, strong brand partnerships and exclusive product offerings give it a competitive edge and make DKS a compelling investment opportunity within the broader retail stocks market.
Shares in this retail company surged after DKS lifted its full-year earnings forecast, following a surge in customer spending on new sneakers and athletic gear. The retailer reported a significant 5.3% growth in comparable sales for its fiscal first quarter, surpassing the 2.4% growth anticipated by analysts.
This is a slight decrease from the $305 million, or $3.40 per share, recorded in the same period the previous year. However, revenue rose to $3.02 billion, a 6.2% increase from $2.84 billion a year earlier.
In light of the strong quarter, Dick’s revised its full-year guidance for earnings per share to a range of $13.35 to $13.75, up from the previously projected range of $12.85 to $13.25. This new guidance exceeds the $13.25 analysts had expected.
Dick’s now expects comparable sales to increase by 2% to 3%, a slight uptick from its earlier forecast of a 1% to 2% rise. This positive outlook is one of the key reasons why investors should remain bullish on DKS shares.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.