Costco Wholesale Corporation’s (COST - Free Report) growth strategies, sturdy comparable sales (comps) performance and strong membership trends reinforce its position in the competitive retail industry. Further, a differentiated product range enables the company to provide an upscale shopping experience for members. We believe that the company’s business model and commitment toward opening membership warehouses will continue to drive traffic.
Moreover, with the wave of digital transformation hitting the sector, Costco is rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. It is steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea, Taiwan and Japan.
In fact, these concerted efforts have been favoring comps, which remain one of the key factors behind incremental sales. The company had witnessed comps growth of 9% during the month of December. This follows an increase of 5.3% in November, 5.7% in October and 4.2% in September. Meanwhile, net sales improved 10.5% in the December month, following a rise of 6.7%, 6.8% and 5.6% in November, October and September, respectively.
Notably, shares of this Issaquah, WA-based company have appreciated 43.4% in a year. This Zacks Rank #2 (Buy) stock has comfortably outperformed the Retail-Wholesale sector and the S&P 500 Index that rallied 20.6% and 25.6%, respectively, in the said timeframe.
Why the Retail Sector?
Like Costco, there are prominent retailers that are going strong on a favorable consumer environment and strategic endeavors. Retailers have been taking initiatives from opening smaller-format stores to bringing in new loyalty program and from embracing new technologies to providing fast delivery options on online purchase or via apps. Notably, better price, omni-channel capabilities and unique products are requisites for brick-&-mortar retailers to stay in the game with pure e-commerce players.
Undoubtedly, the sector’s prospects are closely tied to the purchasing power of consumers, who look pretty confident courtesy of a solid labor market and rise in disposable income. With consumers feeling confident, retail sales are also improving.
Per the Commerce Department, U.S. retail and food services sales advanced 0.3% in December. This follows an upwardly revised increase of 0.3% in November. For the full year, retail sales jumped 5.8%. A report from National Retail Federation revealed that 2019 holiday retail sales increased 4.1% year over year, outpacing the modest increase of 2.1% in 2018.
4 Prominent Picks
We have shortlisted stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Also, the stocks have outperformed the sector. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Buckle, Inc. (BKE - Free Report) , a retailer of casual apparel, footwear, and accessories, is a solid bet with a Zacks Rank #1 and a VGM Score of B. The company has a trailing four-quarter positive earnings surprise of 2.5%, on average. The company has seen its shares surged 45.1% in a year. The company is on track with efforts such as enhancing marketing efficiency, store remodeling and technology upgrades. We note that comparable store net sales for the December month rose 5%.
Another stock worth considering is Ross Stores, Inc. (ROST - Free Report) , which has a long-term earnings growth rate of 10.5%. This off-price retailer of apparel and home fashion has a trailing four-quarter positive earnings surprise of 3.8%, on average. The stock has a Zacks Rank #2 and a VGM Score of B. Moreover, shares of the company have appreciated 28.4% in a year. The company’s commitment to better pricing, merchandise initiatives, cost containment and store expansion bode well. It remains focused on merchandising organization through investments in workforce, processes and technology as part of its key growth strategy.
We also suggest investing in Target Corporation (TGT - Free Report) with a long-term earnings growth rate of 7.5% and a VGM Score of B. This general merchandise retailer has a trailing four-quarter positive earnings surprise of 8.6%, on average. The stock, which carries a Zacks Rank #2, has soared 66.3% in the past year. The company has been deploying resources to enhance omni-channel capabilities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options to take on rivals. Such efforts are aiding in driving robust traffic, favorable store comps and comparable digital sales.
Investors can also count on Best Buy Co., Inc. (BBY - Free Report) , which operates as a retailer of technology products, services, and solutions. This Zacks Rank #2 company has a long-term earnings growth rate of 8.7% and a VGM Score of A. The company has a trailing four-quarter positive earnings surprise of 9.9%, on average. Notably, shares of the company have gained 55.6% in a year. Best Buy’s focus on developing omni-channel capabilities, supply chain and cost-containment efforts along with strengthening partnerships with vendors bode well. It has been making significant progress in the healthcare technology business by undertaking buyouts. Moreover, it has been progressing well with programs like Total Tech Support.
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