4 Retailers FLOURISHING During the Covid-19 Pandemic

Certain retailers are thriving with the coronavirus leading to a surge in demand and stockpiling for many household items. Those with capable e-commerce operations saw a spike in use and demand, and some portion of these customers will be converted to long-term users… 

As online spending becomes a bigger portion of retail spending every year, a significant, online presence is becoming a necessity. The coronavirus presented an unprecedented opportunity for some companies to grow their online platform.

On the other hand, many retailers were shut down for a period of time and unable to make up the difference in online sales. These companies were already dealing with secular headwinds like the decline in foot traffic, the growth of online shopping, and overcapacity in retail. And, the coronavirus exacerbated and exposed these vulnerabilities.

If the economy continues to lag, a wave of bankruptcies among weaker retailers is certainly possible which would mean more opportunity for the stronger ones to capture even more  market share. 

Here are four retailers whose businesses are flourishing in 2020 :

Walmart, Inc. (WMT)

WMT is the largest retailer in the world with nearly 265 million customers visiting its stores across the globe every week. It is one of the better performing stocks during the COVID-19 crisis, as WMT managed to grow due to increased sales of grocery items and strong growth from its e-commerce platform.

WMT generated net revenue of $13.6 billion in the first quarter ending April 29th despite the pandemic for a year-over-year increase of 8.7%. E-commerce sales grew by 37% in the first quarter as the company positions itself for the future.

WMT has recently announced an online subscription service to promote online shopping and increase use of its platform. This new service, called Walmart+, comes with an annual cost of $98 and provides same day grocery delivery, next day delivery, and discounts on many items. Launched as a competitor to Amazon (AMZN) prime service, it’s expected to generate substantial revenues for WMT.

WMT’s consensus revenue estimate of $134.3 billion for the second quarter ending July 2020 indicates a year-over-year increase of 3%. Although the EPS estimate of $1.23 indicates a year-over-year decline, WMT has managed to surpass EPS estimates in three of the last four quarters.

WMT’s recent price performance reflects its ability to capitalize on recent trends. The stock has gained more than 29% since hitting its 52-week low on March 16th due to the market crash.

How does WMT stack up against POWR ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

A for Industry Rank

A for Overall POWR Rating

You can’t ask for better. The stock is also ranked #1 out of 18 stocks in the Grocery/ Big Box Retailers industry.

Target Corporation (TGT)

As one of the biggest retail chains operating in the United States, TGT offers groceries apparel, general merchandise, and electronics. Target operates 1900 stores in all 50 states. 

Due to the lockdown which led to stockpiling of goods, Target’s sales increased over the last quarter. However, the company saw a decrease in the purchase of high-margin items as lower-margin items’ sales increased. 

Online sales were another bright spot as they grew 141% in the first quarter, while physical outlets delivered a 0.9% sales increase. Moreover, TGT increased its quarterly dividend by 3% which enhanced shareholder value. With a free cash flow of $533 million in this quarter, TGT has a dividend yield of 2.17%. TGT has increased its dividends for 49 consecutive years, through a variety of economic conditions.

The consensus estimate for TGT’s July-end quarter of $1.44 reflects a year-over-year decline. However, the company has beat the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate for the second quarter is $19.58 billion, indicating a potential year-over-year increase of 6.3%.

TGT gained more than 35% after hitting its year-to-date low of $90.17 on April 3rd due to the market crash.

TGT’s strong fundamentals are reflected in its POWR Ratings, it has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade and Industry Rank. Within the Grocery/ Big Box Retailers group, it’s ranked #3 out of 18 stocks.

BJ’s Wholesale Club Holdings, Inc. (BJ)

BJ is the biggest wholesale supplier in England, and the third largest in the United States, with over 220 locations serving more than 5.5 million customers. With a year-to-date gain of more than 70%, BJ is one of the best performing stocks of 2020. This impressive gain can be attributed to the higher demand of essential items during the pandemic, as most people stocked up on necessary utilities. Net sales grew 27% and digital sales increased 350% for the first quarter ending May 2nd.  

Amid surging demand for groceries, BJ is opening new locations, which will increase revenues. BJ’s earnings surprise history looks impressive with the company beating the consensus EPS estimates in three of the four quarters. Also, the market expects the company to report EPS of $0.56 for the quarter, which represents a 43.6% increase over the year-ago number. The consensus revenue estimate is also expected to grow by 10.4% year over year to $3.7 billion in the second quarter.

The stock has been consistently rising since hitting its 52-week low of $18.84 on February 2nd. BJ has gained more than 100% since then and the momentum might continue given its recent strength.

It’s no surprise that BJ is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade and Industry Rank. In the 18-stock Grocery/ Big Box Retailers industry, it is ranked #5.

Costco Wholesale Corporation (COST)

Every household is familiar with Costco. As one of the biggest wholesale chains in the world, COST has operations in over 8 countries. COST’s stock is soaring as its business is seeing increased growth due to the pandemic. Even prior to the pandemic, its stock was an outperformer, and the company had a track record of consistent revenue and earning growth.

The company managed to keep all 788 of its warehouses operational during the lockdown period. COST’s operating income grew 5% and e-commerce sales were up 32.3% year over year for the third quarter ended May 10th

COST has a relatively higher growth potential compared to other retail chains because of its global presence. It is currently expanding business to 2 major cities in China, which could be the beginning of accelerating growth given its population of over 1.8 billion people.

COST’s sales grew by 11.5% in the month of June alone. The earnings estimate for the fourth quarter ending August of $2.71 shows a year over year increase of 0.7%. Moreover, the company managed to surpass the consensus EPS estimates in three of the trailing four quarters, which is impressive. COST gained more than 15% since hitting its YTD lows in March due to the panic driven stock market crash.

COST is rated “Strong Buy” in our POWR Ratings system, consistent with the strength in the wholesale business model. It also has an “A” for Trade Grade, Buy & Hold Grade, Peer Rank and Industry Rank. It is also ranked #2 out of 18 stocks in the Grocery/ Big Box Retailers industry. 

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About the Author: ndenotto@adammesh.com