In This Article:
US retail sales rose by 0.2% in February, below economists' growth forecasts of 0.6% for the month; the University of Michigan's preliminary consumer sentiment reading for March saw the index fall to 57.9.
TD Cowen senior research analyst Oliver Chen shares his top picks in the retail sector Madison Mills and Bullseye American Ingenuity Fund portfolio manager Adam Johnson, assessing how consumers, operators, and luxury brands are navigating trade tariff pressures.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
US retail sales were weaker than expected in the month of February, rising just two tenths of a percent. January's numbers were revised lower, sparking concerns over the health of the consumer. With more retail earnings ahead, I want to bring in Oliver Chen, TD Cowen senior research analyst for more on where retail investors can turn for safety amid uncertainty. And Oliver, great to speak with you. And I specifically mean in this case, investors who are interested in the retail sector, where can they find safety amid all the questions about the health of the consumer right now? What names are you looking at?
Yeah, Madison. Our best ideas include BJ's Wholesale. We also like Walmart and Costco. So thematically bigger is better in terms of scale. And clearly Walmart has a lot of supplier scale as well as navigating this dynamic tariff environment. The other thing we'd say, Madison, is this is the year of and, meaning retailers that offer needs plus wants. Meaning retailers that offer food as well as discretionary. And these fit the bill too, Costco, Walmart, and BJ's. BJ's is our best idea of this year in terms of the valuation being closer to 23 times versus Costco's 46 times PE ratio. We also love what Walmart is doing with technology in terms of digital advertising, the marketplaces and artificial intelligence. So each of these carries really nice places to be. And the bottom line is also understanding and buying into into safety into free cash flow into bricks meets clicks into stores plus digital. We're more concerned on discretionary. And as we look at the numbers, the numbers speak for themselves in terms of Macy's guiding to negative 2% or more, Kohl's at negative 4 to 6%. On the other hand, Walmart at plus four, Costco running at plus eight. Uh there's a real bifurcation in terms of pure discretionary and then that need plus want theme.
Yeah, that's interesting in the context too of another name that you sent to us, which is LVMH. And I am interested in that given some of the concern we've heard about how, you know, the market being down is going to impact wealthy consumers. They're not going to have as much money to spend on on some of those retail names. How are you thinking about a name like LVMH?
LVMH has tremendous scale. It's the second biggest market cap company in Europe, and it really has power brands such as Louis Vuitton as well as Dior. They also own Sephora too. Then they have champagne and wine. So it's very diversified. The bottom line is we love the scale at LVMH. However, we're being pretty selective. We recently upgraded Richemont Cartier. And what's happening there is consumers are still buying jewelry. They also like the quiet luxury trend of a lot of the franchises within Richemont and Cartier such as Love Santos. But we like LVMH too, but cautious optimism there, I'd say, especially because of China and lots of issues happening in China with the property market. Something we're watching. And you're right. What happens in luxury is the feel-good factor is important as well as the wealth effect on the S&P movement. So this recent market volatility is not helping consumer confidence, and it's a risk factor to look at. Diving deeper into luxury, our preference is for hard luxury versus soft, meaning Cartier, Richemont, jewelry, that's benefiting in this current environment as well, because overall there's less anxiety than when the election was not resolved. It's been helping the Cartier numbers a lot. It's growing at around 10%.
