A slower holiday sales season won’t be a problem for these 4 consumer companies

Holiday sales growth is expected to be sluggish this year as shoppers continue to get squeezed by sticky inflation. However, business is still projected to flourish at the tail end of 2023 for four of our Club portfolio companies tied to the financial health of the U.S. consumer. Americans are being pressured this year due to ongoing inflation, stemming from higher energy and grocery prices, leaving them with less income for discretionary purchases. That’s expected to impact how consumers approach gift shopping and general spending around the holidays in the coming months. Bank of America expects fourth-quarter same-store sales, or comps as they’re known in the retail industry, to increase 0.6%. The year-ago holiday quarters in 2022 and 2021 were up 3.3% and 6.2%, respectively. Driving this year’s frugality, consumers are more price-conscious than ever. “Shoppers are setting strict budgets for their holiday shopping,” BofA said in a recent note. The analysts also expect retailers to respond by offering promotions and discounts. “Ongoing inflationary pressures have suppressed consumer spending all year,” the analysts said. According to BofA’s aggregated credit and debit card data, retail spending has been negative year-over-year since March. The firm’s channel checks found consumer spending in categories including furniture, home improvement and clothing has been weak. Spending at restaurants and general merchandise fared better. That setup favors four Club stocks: quick-serve specialist Starbucks (SBUX), value destinations Costco (COST) and TJX Companies (TJX) as well as e-commerce king Amazon (AMZN). SBUX YTD mountain Starbucks YTD BofA chose Club holding Starbucks as its top holiday pick for 2023 in the restaurant category ahead of Starbucks’ latest earnings report. “[Starbucks’] consumer reach continues to grow,” the analysts said, fueled by strength in its loyalty rewards membership, which drove double-digit revenue growth in the third quarter in all its markets including China where the post-pandemic recovery has been soft. On Thursday morning , fiscal 2023 Q4 results came in strong and the company saw China comps up 5% and full-year 2024 guidance for 4% to 6% China comps. U.S. comps in the fiscal fourth quarter were up 8% and for the full-year 2024 estimated up 5% to 7%. BofA’s rationale for its buy rating on Starbucks is the company’s higher income consumer base, which makes its business “more insulated” from economic pressures. This consumer cohort is therefore able to manage higher prices on drinks and food items. In addition to releasing earnings, Starbucks on Thursday was hosting an update on its Reinvention Plan implemented last year to further grow its business. During this event, we’ll be looking to see how the plan will drive business growth throughout next year. Costco & TJX Telsey Advisory Group also anticipates softer holiday sales growth this year, but the analysts there are calling out warehouse clubs and off-price retailers as some of the “best-performing subgroups.” This bodes well for Club holdings Costco and TJX, the company behind discounters T.J. Maxx, Marshalls and HomeGoods. COST YTD mountain Costco YTD Sales at warehouse clubs should grow 6.5% year-over-year compared to last year’s 7% annual growth, according to TAG estimates. Despite some headwinds, Costco is still “executing well” as consumers navigate macroeconomic pressures, analysts said. That should help Costco “remain a share gainer with its high membership renewal rates,” TAG said in a recent note. The analysts expect Costco to deliver “solid EPS [earnings per share] growth” driven by higher comparable sales, membership growth and efficient cost management in 2024. We tend to agree because Costco has the right inventory at the best value for its customers. Looking at past membership fee increases and special dividends, the company is overdue on both. Costco is set to issue its November quarter — fiscal 2024 first quarter — on Dec. 14. But unlike most companies, Costco releases monthly sales figures. And, on Wednesday evening, the company said October net sales rose 4.5% year-over-year to $18.53 billion, continuing a streak of monthly sales growth. Excluding gas prices and currency impact, October sales were up 2.2% in the U.S.; up 9.5% in Canada; and up 4.1% for international. E-commerce sales for last month were up 3.1%. TJX YTD mountain TJX Companies YTD TAG expects holiday sales at off-pricers to grow 6% year over year, which would be faster than last year’s 4.3% increase. TJX reports results for its October quarter — or fiscal 2024 third quarter — on Nov. 15. In a separate note Wednesday, Wells Fargo expects big things from TJX. The analysts are citing strong financial performance at MarMaxx — Marshalls and T.J. Maxx unit — and HomeGoods that’s trending “well above” Wall Street expectations. They also said the company is showing “strong execution” against a “favorable buying backdrop.” We agree. This is the time for TJX to shine. TJX stores have the best model for a strapped consumer, the company is well-prepared for the holiday season when it makes the most money. AMZN YTD mountain Amazon YTD TAG analysts reviewed several retail survey insights and found that holiday shopping will start early this year, with online retailers as the preferred destination. That means Amazon, which has prepared for the holiday shopping season by hiring 250,000 employees, a significantly higher count than last year’s 150,000 hires. Black Friday and Cyber Monday will remain popular holiday shopping events, the analysts anticipate, as more shoppers spread out their holiday purchases. Shoppers are expected to turn to Amazon as they seek out cost-saving promotions and deals. Amazon unofficially kicked off the holiday shopping season during its recent two-day Prime Big Deal Days event on Oct. 11 and 12. Amazon said Prime members saved more than $1 billion by taking advantage of millions of deals. We’re confident that Amazon can perform well during this holiday season, delivering stellar customer service. Amazon’s consolidation of its fulfillment network into eight regional distribution centers has already helped reduce delivery touchpoints and provide faster and less expensive delivery services to Amazon customers. In the company’s post-earnings conference call last week, CEO Andy Jassy said that not only is stocking items closer to their final destination helping on cost — but the faster delivery times, as a result, are boosting demand. “When you deliver faster delivery to customers they actually start to consider you for a lot more items than they otherwise would.” He added, “When you’re consistently getting something same day or next day it just changes what you’re willing to do.” (Jim Cramer’s Charitable Trust is long SBUX, COST, TJX, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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