3 Top Retail Stocks to Watch in June

Consumer-focused stocks sometimes get a bad rap on Wall Street when compared to their higher-growth peers in areas like tech and healthcare. But the retailing world is home to many strong brands and profitable operating models, too.

With that in mind, we asked Motley Fool contributors for a few consumer stock ideas that are worth following right now. Here's why lululemon athletica (NASDAQ: LULU), McCormick (NYSE: MKC), and American Eagle Outfitters (NYSE: AEO) topped that list.

Still a buy a record highs

Steve Symington (lululemon): Shares of yoga apparel specialist lululemon athletica touched an all-time high following its latest exceptional quarterly results -- and with good reason. The company exceeded its own financial guidance (and Wall Street's expectations) for the fifth straight quarter, with revenue rising 22% at constant currencies to $782 million and earnings rising 35% to $0.74 per share. And lululemon achieved these results in spite of what CEO Calvin McDonald acknowledged as broader softness in the apparel space.

But we're only just starting to see the first fruits of lululemon's recently unveiled "Power of Three" five-year growth plan, which centers around advancing product innovation, promoting its omni-channel experience (balancing the in-store and online channels), and expanding both its international and core North American markets.

Management outlined encouraging progress on all three fronts during this week's quarterly conference call: Consumers are responding well to product innovations in both the men's and women's lines, physical-store comparable sales climbed 8% while digital comps soared 35% this quarter, and the brand's 18% revenue growth in North America (driven by both higher traffic and new stores) nicely complemented broad-based revenue gains overseas (70% in China, 40% in Europe).

Couple that with lululemon's generous capital returns, including a new $500 million repurchase plan authorized in March that replaced an exhausted $600 million plan approved in early 2018, and I think this is one retail winner that should only keep on winning.

A "best-in-breed" apparel retailer

Leo Sun (American Eagle Outfitters): Many apparel retailers struggled over the past few years as mall traffic dried up, fast fashion retailers entered the market, and more people purchased clothes online. However, one company which survived that meltdown was American Eagle Outfitters (NYSE: AEO).

AEO recently posted its 17th straight quarter of positive comps growth. American Eagle's comps rose 4%, marking its eighth straight quarter of growth. Aerie's comps jumped 14%, marking the lingerie and activewear brand's 18th straight quarter of growth.

American Eagle continues to lock in teen shoppers with its popular jeans, while Aerie is luring shoppers away from L Brands' Victoria's Secret with body-positive marketing campaigns, a wider range of sizes, and lower prices. AEO plans to open up to 70 new Aerie locations this year, which will boost its total store count (both stand-alone stores and American Eagle's connected stores) to over 400 locations.

AEO also generated 30% of its revenue from digital channels last quarter, giving it a stronger online presence than many of its fast fashion challengers. By comparison, Inditex -- the parent company of Zara, Bershka, and Pull & Bear -- generated just 12% of its sales online last year.

American Eagle Outfitters is an interesting stock to watch this month because it's one of a handful of retailers that posted a solid first quarter. Wall Street expects its revenue and earnings to rise 5% and 8%, respectively, this year -- a meaningful growth rate for a stock that trades at less than 10 times forward earnings. AEO also pays a generous forward dividend yield of 3.2%. That low valuation and high yield could make it a good defensive stock to own in a turbulent market.

Look for flavorful returns

Demitri Kalogeropoulos (McCormick): On June 27, McCormick will post its fiscal second-quarter results, and -- if recent history is any guide -- investors should like what they hear from the spice and flavorings giant. The company reported a healthy sales growth rebound last quarter, just as management predicted it would. With revenue improving by 4% at its last outing, McCormick remains one of the fastest-growing companies in the consumer packaged foods space.

But an even better reason to like this stock is the fact that the business is getting more profitable. Its sales mix has been tilting toward high-margin condiments and sauces thanks to its recent acquisition of the French's and Frank's brands. McCormick has more room to squeeze value from that game-changing merger, too, as it capitalizes on its partnership with retailers around the world to gain wider shelf space for those franchises.

Assuming no big surprises in the upcoming report, McCormick should grow sales by about 4% this year as profits expand at about 5%. Shareholders can expect those solid returns to be further boosted in the years to come by a growing dividend and share purchases that will likely restart sometime in 2020 following a pause to pay down new debt from the French's and Frank's buyout.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Leo Sun has no position in any of the stocks mentioned. Steve Symington owns shares of Lululemon Athletica. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.