Why These Two Retail Stocks Are Hot

Two of the hottest stocks on Wednesday were retailers. Abercrombie and Fitch (NYSE:ANF) and detective‘s sporting goods (NYSE:DKS). Clothing retailer Abercrombie & Fitch rose 27% to $193 a share on Wednesday, while sporting goods chain Dick’s Sporting Goods rose 16% to $227 a share.

Both stocks soared to record highs on explosive earnings reports released Wednesday morning. It’s been a strong year for retail stocks so far, up about 20% since the beginning of the year.

Explosive Revenue Results

Both retail chains crushed their respective profit estimates.

In its first fiscal quarter, which ended May 4, Abercrombie & Fitch reported net sales of $1 billion, up 22% year-over-year, and same-store sales rose 21%. Analysts expected sales for the quarter to be about $958 million.

Additionally, the retailer’s gross margin rose 540 basis points to 66.4%. Meanwhile, Abercrombie and Fitch’s operating profit soared about 282% year-on-year to $130 million. Earnings per share were $2.14 per share, up from 32 cents per share in the same quarter a year ago.

“Leveraging agile tracking capabilities and inventory discipline, we successfully navigated seasonal transitions with relevant assortments and strong marketing to drive sales that exceeded expectations. Growth was broad-based across regions and brands, with the Abercrombie brand posting 31% growth and the Hollister brand growing 12%,” CEO Fran Horowitz said in the earnings report.

Dick’s Sporting Goods also beat earnings estimates with a huge quarter. During the quarter ended May 4, Dick’s had net sales of $3 billion, up 6.2% from the same quarter a year ago. This figure exceeded expectations of $2.94 billion.

Same-store sales increased 5.6%, higher than the 3.6% increase in the same period last year. Dicks’ net income fell 10% to $275 million, or $3.30 per share, easily beating estimates.

The retailer’s net profit fell due to increased costs, including the opening of two new House of Sport experiential concept stores.

“Our core strategy and execution are delivering strong results and we continue to gain market share as consumers prioritize Dick’s Sporting Goods to meet their needs. “Due to our strong first quarter performance, expectations of continued solid demand from athletes, and confidence in our business, we are raising our full-year outlook,” Lauren Hobart, president and CEO, said in the earnings report.

a brighter outlook

Investors were not only enthusiastic about the results for both retailers; They were also pleased with the prospects of these two companies.

Abercrombie & Fitch raised its guidance based on strong sales. We aim to increase net sales by 10% this fiscal year. The retailer’s previous outlook had projected net sales growth of 4% to 6%, so this is a significant increase. The company also raised its operating profit margin outlook to 14% from 12%.

This quarter, Abercrombie & Fitch reported strong net sales growth in the mid-teens and operating margins of 13% to 14%, up from 9.6% in the year-ago quarter.

Dick’s Sporting Goods also raised its fiscal year net sales forecast to $13.1 billion to $13.2 billion, up from its previous forecast of $13 billion to $13.1 billion.

Additionally, the retailer raised its same-store sales target to a 2% to 3% increase from the previous 1% to 2% increase. Finally, new earnings per share guidance increased to $13.35 to $13.75, up from previous guidance of $12.85 to $13.25.

Should you buy either stock?

Abercrombie & Fitch received a significant price target increase on Wednesday after its earnings report was released, and Dick’s Sporting Goods also received a few smaller upgrades.

Abercrombie & Fitch stock is currently up a whopping 108% YTD and still trades at a reasonable P/E ratio of 24. Meanwhile, Dick’s Sporting Goods stock is also soaring, up 54.7% YTD. , including Wednesday’s gains. A P/E of 16 is much cheaper.

I think both of these are still reasonable buys based on their outlook and valuation. Consumer confidence is rising and inflation is falling. Perhaps Dick’s is a slightly better buy due to its lower valuation and rising market share. But Abercrombie & Fitch may also have more room to operate.