It is retail’s time in the spotlight.
Walmart, Home Depot, Kohl’s and Target are among the names reporting earnings this week. This comes after July retail sales recovered all coronavirus pandemic losses.
Delano Saporu, founder of New Street Advisors, said it makes sense to stick with the outperformers in the retail space.
“The winners are still the way to go specifically talking about Walmart, Target, Alibaba, Amazon. We talk about the e-commerce names. … We talk about big-box retail names,” Saporu told CNBC’s “Trading Nation” on Friday.
One big-box retailer stands out from the pack, said Saporu.
“I do like, when it comes to a name like Walmart, the partnership they’ve developed with Instacart. It’s trading cheaper in the broader consumer industry right now at 25 times [forward earnings], and they’ve talked about their margins being compressed,” said Saporu.
Those compressed margins, he said, could give them incentive to shift from low-margin products to products with higher margins. Walmart reported a 24.2% gross margin in its April-ended quarter. The company is scheduled to report earnings before the bell Tuesday.
Gina Sanchez, CEO of Chantico Global, said that there’s a split in retail between the haves and have-nots in the recent retail sales data.
“Bricks and mortar actually got killed and Amazon and Alibaba did very, very well. And so if you look at the digital names, I think that that trend probably continues. We are getting more data, and people are taking more calculated risks in terms of getting out there, but I think it’s too early to go for something like a Foot Locker or Kohl’s, which really relies on mall traffic, on foot traffic. I think that you need to stay digital,” Sanchez said during the same “Trading Nation” segment.
One brick-and-mortar space that Sanchez does see outperforming is home improvement chains such as Home Depot and Lowe’s.
“Home Depot has done very well, and they actually have wider margins than most,” Sanchez said. “As most companies are continuing to extend how long they’re expecting people to work from home, people have continued to build and improve home office situations, and quite frankly just do home improvement around the house. I think that story also persists in the pandemic.”
Home Depot is scheduled to report earnings before the bell Tuesday. Lowe’s is set for Wednesday morning.
Disclosure: New Street Advisors holds Alibaba.
