Thanks to robust consumer demand and strategic collaborations, the retail sector remained resilient despite the headwinds of high inflation and supply chain disruptions. However, retail sales fell in December, declining 1.1% sequentially. On a year-over-year basis, retail sales rose 6%. December was the second consecutive month that Americans cut back on their spending.
Retail sales during the holiday season also came below estimates as they grew 5.3% year-over-year to $936.30 billion during November-December. Although holiday growth did not meet expectations, sales for the year rose 7% from the prior-year period to $4.90 trillion, meeting the NRF’s forecast of between 6% to 8% growth for the year.
With inflation starting to ease and the jobless claims for the week ended January 14 dropping to their lowest in fifteen weeks to 190,000, retail sales are expected to recover. According to TradingEconomics’ econometric models, U.S. retail sales are expected to rise 1.5% year-over-year in 2024 and 1.9% year-over-year in 2025.
Investors’ interest in retail stocks is evident from the VanEck Vectors Retail ETF’s (RTH) 5.2% rise over the past three months.
Amid this backdrop, it could be wise for investors to invest in fundamentally strong retail stocks Albertsons Companies, Inc. (ACI), Dillard's, Inc. (DDS), and J.Jill, Inc. (JILL).
Albertsons Companies, Inc. (ACI)
ACI engages in the operation of food and drug stores. The company offers grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. It also manufactures and processes food products for sale in stores.
In terms of the trailing-12-month asset turnover ratio, ACI’s 2.64% is 218.6% higher than the 0.83% industry average. Likewise, its 81.65% trailing-12-month ROCE is significantly higher than the industry average of 10.59%.
On January 12, 2023, fresh food technology company Afresh Technologies and ACI announced the completion of an enterprise rollout of the Afresh predictive ordering and inventory management platform.
This partnership is expected to help better manage the company’s inventory in support of its environmental sustainability goals by reducing food waste. In addition, it ensures its customers’ access to fresher products.
ACI’s net sales and other revenue for the third quarter that ended December 3, 2022, increased 8.5% year-over-year to $18.15 billion. The company’s adjusted net income increased 10.5% year-over-year to $505.10 million.
Moreover, its adjusted EBITDA increased 10.2% year-over-year to $1.16 billion, while its adjusted net EPS came in at $0.87, representing a 10.1% increase from the prior-year quarter.
Analysts expect ACI’s EPS and revenue for the fiscal year 2023 to increase 4.7% and 7.9% year-over-year to $3.21 and $77.54 billion, respectively. The stock has gained 4.2% over the past six months to close the last trading session at $21.01.
ACI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Grocery/Big Box Retailers industry, it is ranked #7 out of 39 stocks. It has a B grade for Value, Sentiment, and Quality.
In total, we rate ACI on eight different levels. Beyond what we stated above, we have also given ACI grades for Growth, Momentum, and Stability. Get all ACI ratings here.
Dillard's, Inc. (DDS)
DDS operates retail department stores in the southeastern, southwestern, and midwestern areas of the United States. Its stores offer merchandise, fashion apparel, accessories, cosmetics, home furnishings, and other consumer goods.
In terms of the trailing-12-month asset turnover ratio, DDS’ 1.86% is 83.2% higher than the 1.01% industry average. Likewise, its 13.22% trailing-12-month net income margin is 155.2% higher than the industry average of 5.18%.
For the fiscal third quarter (ended October 29, 2022), DDS’ net sales increased 4% year-over-year to $1.57 billion. The company’s total assets increased 1.4% year-over-year to $3.79 billion. Its EPS came in at $10.96, representing an 11.7% increase from the prior-year period.
DDS’ EPS and revenue for the fiscal year 2023 are expected to increase 6.5% and 5.2% year-over-year to $42.64 and $6.97 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 74.6% over the past six months to close the last trading session at $367.01.
DDS’ POWR Ratings reflect its solid prospects. The company has an overall rating of B, which equates to Buy in our proprietary rating system. It is ranked #9 out of 67 stocks in the Fashion & Luxury industry. In addition, it has an A grade for Quality and a B for Value.
Click here to see the other ratings of DDS for Growth, Momentum, Stability, and Sentiment.
J.Jill, Inc. (JILL)
JILL operates as an omnichannel retailer of women's apparel under the J.Jill brand. The company offers knit and woven tops, bottoms, dresses, sweaters, outerwear, footwear, and accessories, including scarves, jewelry, and hosiery.
In terms of the trailing-12-month net income margin, JILL’s 7.30% is 40.9% higher than the industry average of 5.18%. Its 1.28% trailing-12-month asset turnover ratio is 26.7% higher than the 1.01% industry average. Likewise, its 68.49% trailing-12-month gross profit margin is 92.5% higher than the industry average of 35.58%.
JILL’s adjusted income from operations for the third quarter that ended October 29, 2022, increased 7.3% from the year-ago period to $20.15 million. The company’s adjusted net income increased 19% year-over-year to $10.98 million.
Also, its adjusted EBITDA gained 2.1% year-over-year to $27.52 million, while its adjusted EPS came in at $0.77, representing an 18.5% increase from the prior-year quarter.
Analysts expect JILL’s EPS and revenue for the fiscal year 2023 to increase 37.1% and 4.4% year-over-year to $2.92 and $610.70 million, respectively. JILL has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 58.3% over the past nine months to close the last trading session at $24.95.
JILL’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. It is ranked #2 in the Fashion & Luxury industry. In addition, it has an A grade for Sentiment and Quality and a B for Value.
To see the other ratings of JILL for Growth, Momentum, and Stability, click here.
ACI shares were trading at $21.18 per share on Monday afternoon, up $0.17 (+0.81%). Year-to-date, ACI has gained 2.12%, versus a 5.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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