Another round of fiscal stimulus could give a much-needed lift to a range of retailers as the persistent COVID-19 health crisis continues to slam the sector into the new year.
According to a new report by investment management firm Cowen, President Joe Biden’s proposed $1.9 trillion relief package could provide a “tremendous boost” to lower- and middle-income shoppers, whose disposable incomes rose 17% in April as a result of then-President Donald Trump’s $2.2 trillion CARES Act. Analyst John Kernan suggested that the “direct beneficiaries” of these payments could include retailers like Foot Locker Inc. and Dick’s Sporting Goods Inc. As a result, Kernan raised his price targets for FL and DKS stocks to a respective $66 and $87, from $55 and $81.
Both Foot Locker and Dick’s are among the companies that have appeared to benefit from the broader coronavirus-induced shift to at-home and active lifestyles. In November, Foot Locker delivered a third-quarter earnings and revenues beat, with comps that increased 7.7%. That same month, Dick’s trounced market watchers’ third-quarter forecasts, while its same-store sales advanced 23.2%.
“Given the increased enthusiasm for outdoor activities in a socially distant world,” wrote Kernan, “we expect the strength in sporting goods to continue into 2021.”
Cowen also predicted gains for big-box giants Walmart Inc. and Target Corp., whose status as essential retailers allowed them to stay open throughout the pandemic despite the widespread temporary closures of other so-called “nonessential” stores. Both chains continue to impress Wall Street amid heightened demand for everyday goods and their one-stop shop experience for consumers who might still feel reluctant to visit multiple stores for their necessities.
What’s more, the investment management firm pointed out the potential for federal aid to benefit off-pricers such as TJ Maxx parent The TJX Companies Inc., Ross Stores Inc. and Burlington Stores Inc. — retailers that suffered as shoppers flocked to digital channels in lieu of brick and mortar. Some discounters have a limited or even no e-commerce presence, and even for those that did dabble in digital, the “thrill of the hunt” proved challenging to replicate online. With a relief package on the way, TJX, ROST and BURL, read the distribution note, could be positioned for improvement given the channel’s higher exposure to lower- and middle-income shoppers.
Among the other stocks that Cowen touted were Coach and Stuart Weitzman parent Tapestry Inc. as well as Boot Barn Holdings Inc. According to analysts Oliver Chen and Max Rakhlenko, “differentiated specialty leaders” will be “better positioned to capture stimulus dollars as positive traffic momentum continues, consumers invest in their homes and digital shopping options drive loyalty.”
As part of his American Rescue Plan, Biden has called for $1,400 in direct payments to eligible Americans as soon as late March and monthly payments to families with children starting in July. He intends to raise weekly unemployment benefits to $400 and the federal minimum wage to $15 per hour — more than double the current rate of $7.25.
According to a report last month from the National Retail Federation, overall economic activity is not expected to return to pre-pandemic levels until late this year and employment at pre-pandemic levels is unlikely to return until well into 2022 or possibly 2023. Still, the trade group’s chief economist, Jack Kleinhenz, suggested that new stimulus checks and benefits could help maintain and accelerate the country’s ongoing recovery.
“We expect retail sales spending to see a boost from the new round of stimulus,” he said. “Consumers responded quickly to last spring’s stimulus checks, and distribution of the new checks will come at a critical time that will help carry 2020’s momentum into 2021.”