2 Retail Stocks To Buy In January, 2 To Avoid

NASDAQ: ROST | Ross Stores, Inc. News, Ratings, and Charts

Retail companies, particularly the traditional brick-and-mortar retailers, have been devastated in 2020 thanks to the pandemic. Government orders to shutdown physical stores and quick adoption of online shopping by customers were the key reasons why the retail space was profoundly impacted.

However, the reopening of the economy and strategic changes in the business models have been helping some retailers recover. The deployment of effective vaccines is also boosting investors’ confidence in the retail space.

Retail stocks, as represented by the SPDR S&P Retail ETF (XRT), have significantly outperformed the broader market. XRT has gained 40% in 2020 versus the S&P 500’s 15.6% returns. The momentum is likely to continue as the economy recovers steadily and consumer spending reaches pre-pandemic levels.

The retail landscape has rapidly undergone a change, primarily due to supply chains disruptions and permanent store closures. However, several long-term winners and losers have emerged based on fundamentals and recent developments. While Ross Stores, Inc. (ROST) and Burlington Stores, Inc. (BURL) have fared well and could generate promising returns next year, the prospects appear bleak for stocks like Macy’s Inc. (M) and J. Jill, Inc. (JILL).

Stocks to Buy - Ross Stores, Inc. (ROST)

ROST operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s Discounts brands, offering apparel, accessories, footwear, and home fashions. As of October 2020, it operated approximately 1,800 off-price apparel and home fashion stores in 40 states in the United States.

In October, ROST opened 9 dd’s Discounts and 30 Ross stores across 17 different states as a part of its expansion plan. These new locations completed the company’s store growth plans for fiscal 2020 with the addition of 66 new stores. Moreover, the company announced the closing of a $1 billion notes offering and early settlement of tender offers in the same month.

In the third quarter that ended September 2020, ROST reported improved trends in third-quarter, delivering better-than-expected results. The company’s sales declined 2% to $3.8 billion, while comparable store sales declined 3% year-over-year.

However, this implied a 40% sequential increase in revenues on the back of better merchandise assortments, a delayed back-to-school season, gains from larger markets, and a return to normal store hours. Moreover, adjusted EPS came in at $1.02, which is relatively stable compared to the year-ago value of $1.03 per share.

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