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Investors have been somewhat cautious about the retail sector on worries that inflation is still having a major impact with consumers and affecting the level of discounting in key categories. “Retailers know that shoppers have become price-sensitive and are looking for steep promotions and discounts. Therefore, retailers have ramped up the amount of merchandise on sale, hoping that more shoppers will open their wallets ahead of Black Friday,” noted LSEG Director Jharonne Martis ahead of the key shopping period.
Running contrary to the cautious vibe, early data for the holiday shopping period has been solid. For the first 23 days of November, online sales are up 6.8% from the corresponding period a year ago. Notably, Mattel’s (MAT) Barbie line of toys has been highlighted by several analysts to be a hot seller for the early part of the holiday shopping season. Separately, traffic reports indicate Walmart (WMT) may be outperforming expectations for the first part of the holiday season. Meanwhile, Black Friday tracking showed Five Below (FIVE) had solid traffic during the day. Bank of America expects an acceleration for Five Below (FIVE) into Christmas. ‘With persistently high inflation, consumers are increasingly seeking out value and buying closer to need, noted analyst Jason Hass. On that point, Target (TGT) recently highlighted that two-thirds of its toy assortment is priced below $25 this year. Haas thinks the the rollout of Five Beyond (products price $6 to $25) better positions it in the gift-giving category this year. Five Below (FIVE) is also noted to have one of the most differentiated offerings in retail. The retailer is also expected to see a bigger impact from licensed properties this holiday season following a number of blockbuster summer movies, including Barbie, Super Mario, Transformers, and Spiderman. The overall view on FIVE is that it is on a glide path for solid returns.
19 out of 21 Wall Street analysts have a Buy-rating or higher on Five Below (FIVE). Five Below (FIVE) is due to report earnings on November 29. Analysts expect the discounter to report revenue of $728M, comparable sales growth of 1.3%, and EPS of $0.23. Heading into earnings day, the last 19 EPS revisions on Five Below (FIVE) from analysts have been to the downward side.
Value plays: In terms of quantitative analysis, the stocks in the retail sector with the highest Seeking Alpha Quant Ratings include Build-A-Bear Workshop, Ulta Beauty (ULTA), Dick’s Sporting Goods (DKS), Abercrombie & Fitch (ANF), and Gap (GPS). The stocks in the retail sector with the very highest valuation grades include Big 5 Sporting Goods (BGFV), Express (EXPR), Lands’ End (LE), and Qurate Retail (QRTEA). Seeking Alpha analyst Nickle Lyu called Crocs (CROX) a deep value pick earlier in the week, while Gustavo Larraga Tapia pointed to an attractive entry point on Bath & Body Works (BBWI).