The retail industry is fraught with increasing risks as the recession takes hold. Inflation erodes consumer disposable income levels. It hurts their buying power. Retail giants like Best Buy (BBY), Walmart (WMT), and Target (TGT) reported higher shrinkage, or theft, costing the company millions in losses.
Costco (COST) posted May 2022 sales that were slower than inflation.
The above-mentioned retail giants will survive. Ulta Beauty (ULTA), a mid-cap, is the stock to watch. Shares fell from a $550 peak to as low as ~$400.
Ulta fell after posting Q1 EPS of $6.88. Net sales rose by 9.3% to $2.6 billion. Investors sold shares when Ulta issued a net sales guidance of $11B to $11.1B. It trimmed its operating margin guidance from 14.5% to 14.8%. The lower profitability spooked shareholders. Shrinkage is one of the reasons for the weaker profitability.
Expect Ulta to find ways to boost margins. As it expands, the share price will recover.
Victoria’s Secret & Co. (VSCO) has a significant strategic problem. Not only did the company switch its target customer base, but the product quality also worsened.
Investors should consider a core portfolio with WMT, COST, and BBY stock. ULTA is worth considering while VSCO stock is the one to avoid.
