Walmart, Costco seen as top retailers in 2019: Moody's
While e-commerce giants upended the retail sector, brick-and-mortar stores are beginning to adapt – and even thrive—in the evolving consumer landscape.
Last week, Moody’s Investors Service raised its outlook to Positive from Stable for the U.S. retail industry for the first time since 2015, with analysts saying they don’t believe Amazon will be able to steal the industry’s competitive advantage any time in the near future.
The ratings agency estimates only about 15 percent of sales are completed online.
However, some companies within the sector have been able to adapt to trends better than others and are poised to flourish in 2019.
Here’s a look at some of Moody’s retail winners for the coming year:
Walmart
Retail giant Walmart will continue to see a “payoff from sizable investments it has made for growth,” Moody’s said.
The firm noted Walmart’s acquisition of Jet.com is one way the company has expanded its online platform, and it will “continue to be a force” in the digital space.
Additionally, the company has focused on investing in food – which “remains a compelling product to drive traffic.”
As Amazon’s presence in the sector has ramped up pressure to offer new shipping and delivery options, Walmart recently announced it would expand its two-day shipping options to “millions” of new items sold by third-party retailers ahead of the holiday season.
It also has some same-day delivery options for groceries.
Costco
Membership-only warehouse club Costco Wholesale Corp. is another brand that is likely to do well next year.
According to Moody’s, discounters and warehouse clubs will generate $25.9 billion in 2019, making up just shy of one-quarter of the retail sector’s earnings power.
Analysts say the company has successfully been able to leverage its membership base. It reported net income of more than $1 billion during its most recent fiscal quarter – up more than 13 percent when compared with the same period last year. Net sales were $43.4 billion.
Shares are up nearly 20 percent so far this year.
Dollar Tree
Moody’s cited dollar stores as an area of strength in 2018 – a trend it expects to continue through the coming year.
Income among dollar stores is estimated to grow by 5.8 percent and dollar stores are expected to comprise 4 percent of the retail sector’s overall earnings potential next year.
Moody’s named Dollar Tree as one brand poised to take advantage of these trends.
The company’s most recent quarterly report fell slightly short of Wall Street expectations.
Shares recently jumped on reports activist investor Carl Icahn took a stake in the company. Icahn was an investor in Family Dollar, which was acquired by Dollar Tree about four years ago.
Kroger
Supermarket chains are likely to achieve sizable growth next year, especially when compared with 2017 and 2018, Moody’s forecasts.
Kroger, a large player in the space, is poised for higher same-store sales growth. Moody’s named the “Restock Kroger” plan, which involves store remodeling and technology enhancement at its locations, as a tailwind.
Analysts also pointed to investments in meal kit provider Home Chef and an online British grocer as strategic moves that could enhance its positioning. Investments in the pharmacy business also boost the company’s outlook.
Moody’s forecasts Kroger’s operating profits will rise to about $450 million by 2020.
Others
In addition to the names listed above, Moody’s forecasts that Target, Amazon, AutoZone, Dollar General, Albertsons, T.J. Maxx, Bass Pro, Ross Stores and O’Reilly Automotive will all perform well in 2019.