As 2023 draws to a close, numerous analysts and investors are shifting their focus to the prospects and developments anticipated in the stock market for 2024. Looking ahead to next year, an analyst sizes up the top opportunities in the retail stock sector.
Goldman Sachs on Retail Stocks: Improving margins, a strong labor market and healthier consumer finances could benefit the retail sector, according to analyst Kate McShane.
"As we look into FY24, we are more bullish on the potential for stock upside in the hardlines/broadlines universe than we have been in the last two years," McShane said.
The analyst said deflation could be both a headwind and tailwind in 2024 with prices coming down, but unit growth potentially improving.
Goldman Sachs on Target: Retailer Target Corporation
Concerns over market share losses could make Target a highly debated stock heading into 2024, McShane said.
"We see long-term growth for TGT tied to market share gains across categories from various mall-based retailers on strong merchandising," McShane said.
The analyst said Target could see an improvement to operating margins by 6% or more "over the long-term." The margin improvement could come from a normalization of mix, markdowns and freight/transportation costs along with improved scale.
"While Target has underperformed other retailers in FY23, we think the higher mix of discretionary has resulted in a notable comp drag."
Goldman Sachs Other Retail Favorites: Ollie's Bargain Outlet Holding
Shares of Ollie's were upgraded from Neutral to Buy in October by Goldman Sachs, with the price target raised to $91.
"We expect tailwinds from the favorable closeout environment to remain in the near term, while the company's growing scale drives a virtuous cycle of improved procurement opportunities and sales growth," McShane said.
The analyst said concerns over Ollie's lapping comparable sales could be minimized with attractive inventory in the deal pipeline for the company.
McShane also said bargain prices found at Ollie's could continue to do well with consumers worried about macro headwinds.
Another top retail pick for Goldman Sachs in 2024 is Bath & Body Works Inc
"BBWI stated that it sees a path to positive sales growth in 2H24, and while early, we think providing visibility for when the company could return to growth on the top line is a positive," McShane said.
The analyst said the first half of fiscal 2024 could be better than fiscal 2023 for the company given negative comp sales to beat, better customer execution and a "less inflationary environment."
Bath & Body Works rolling out new product categories like men's, laundry and hair care also gets a mention from the analyst.
The analyst said Bath & Body Works could also benefit from share buybacks, which comes after the company spent $50 million on buying shares in the third quarter.
