Black Friday sales are already popping up everywhere ahead of the busiest shopping season of the year.
In an ironic twist, the historical data tells us that the retail index usually finds its seasonal top within days after Black Friday.
The reason is simple, investors usually “buy the rumor” of the seasonal surge in retail activity.
Then the retail stocks usually start to see selling pressure as results from the Black Friday shopping event begin to trickle in. This is the “sell the news” part of the equation.
But every year, there are a few select stocks that continue their rally all the way through the New Year.
For those few stocks, it boils down to hitting the perfect combination of the right inventory given the economic and style trends.
Consumer confidence has been on the rise for the last six months as everyone’s economic outlook has improved. On top of that, consumers are feeling like spending more than they have in the last few years for two reasons.
First, inflation has continued to cool – for now – meaning that most shoppers are feeling the same “sticker shock” that they were last year. With the price of groceries and fast-food prices under better control, the average consumer feels more comfortable spending this holiday season.
According to Bank of America, Americans plan to spend an average of $2,100 outside of their normal household budgets this year. That represents a 7% increase from last year. That number was $1,600 in 2022.
The second Driver, lower interest rates.
Just two months ago we saw a surge in credit spending as consumers saw lower rates on the horizon.
While the drop of interest rates won’t affect what consumers are paying on their credit cards, lower rates do increase large purchases that require financing.
The positive backdrop for consumers has potential to push a few stocks higher over the next two months.
While inflation and pricing concerns have been squelched for now, consumers are still gravitating to the warehouse style shopping of Costco.
The holiday season accounts for roughly 10.3% of Costco’s annual revenue. Last year, Costco saw a 9.9% increase in their December sales, outpacing the actual increase in consumer spending for 2023.
Costco is one of the masters of seasonal retailing. The company’s attention to trends and pricing makes it a shopping stop for most families. If you shop there you know. As a result of their inventory timing, Costco stretches the average shopper’s receipt by 10-15%, helping to bolster the holiday shopping results.
Seasonally, Costco shares can be tepid in December like most retail stocks.
Shares average a return of 3% in the month of December while the retail sector (XRT) barely squeaks out of December with gains.
This year the company does have an additional tailwind. In September, Costco started increasing the price of their annual memberships. The 8% increase in membership fees will start tricking in to Costco’s earnings report in the coming months.
Costco’s membership revenue accounts for $5 billion for the company, making it the largest profit source.
Shares of Costco recently started to break out of their trading range and are gaining bullish momentum.
Burlington Stores appear to be in the retail sweet spot this year.
The company’s shares started what is referred to as a “Volatility Rally” last week as the stock broke out of a tight trading range.
One reason for the breakout is that the company’s inventory is appealing in several ways.
Burlington Stores is best known as a national “off-price” retailer. The stores offer a wide variety of high-quality, branded apparel at significantly lower prices than traditional department stores.
This is exactly what the budget conscience holiday shoppers are looking for this year.
Their inventory includes clothing for men, women, and children, as well as accessories, footwear, home decor, baby products, and pet supplies.
Because of the large swath of offerings, Burlington Store’s stock is one of the strongest performers in the month of December among retail stocks.
Over the last 12 years, Burlington shares have averaged a performance of 5.1% for the month of December. This puts it among the top performers in the industry by performance.
Shares of Burlington are now breaking through round-numbered resistance at $300 on their way to a $350 target price.
Chewy stock is in the middle of its strongest seasonal period of the year.
The pet retailer is among the top retail performers for the fourth quarter of the year, including strong average returns in December every year.
This is another one of those “If you know…” situations.
Here’s your stat… as of 2024, less than half of U.S. family households include children under the age of 18, specifically about 39% of family households.
Also as of 2024, an estimated 66% of U.S. households, or about 86.9 million families, own a pet.
These numbers highlight the significant presence of pets in American homes, and an upward trend in pet ownership over the past decades.
Finally, the average American will spend $50 on their pet this holiday season.
Chewy, with its less expensive online selling model, benefits from this combination of data, and the company’s reach goes beyond the holiday season.
Sticking with the holiday season theme, Chewy’s stock posts an impressive 8.1% average return for the month of December. Furthermore, the stock trades higher in the month of December 60% of the time. That makes Chewy one of the consistently best performing retail stocks.
Shares of Chewy just saw a “Silver Cross” patter form. This patters happens when the stock’s short-term 20-day moving average crosses above its 50-day moving average.
The Silver Cross represents a strengthening of the stock’s momentum and forecasts higher prices over the next 4-6 weeks, perfect for the end of year rally.
Investors should target a price of $42 for Chewy shares over the next 3-6 months and a $50 target over the next year.
