This is a year that the investment world won't soon forget, and the coronavirus disease 2019 (COVID-19) pandemic is squarely to blame.
In a span of five months, investors have endured about 10 years' worth of volatility. They witnessed the steepest and fastest bear market dive in history, as well as the strongest quarterly rally in some 22 years. To boot, oil prices briefly turned negative, U.S. 10-year and 30-year bond yields hit all-time lows, and the U.S. unemployment rate rocketed to a more than eight-decade high.
And yet, amid this chaos, some retail stocks are thriving.
While there's little question that traditional brick-and-mortar retailers are likely to struggle because of the coronavirus pandemic, a trio of retail stocks is bucking this weakness big-time and offering shareholders insane growth potential.
Ollie's Bargain Outlet
The first retail stock delivering eye-popping growth potential is extreme discount chain Ollie's Bargain Outlet (OLLI -0.73%).
Ollie's operates 366 stores in 23 states, so it's not exactly a brand-name company that everyone is going to be familiar with. But take a closer look at Wall Street's expectations for the company and you'll surely want to get to know Ollie a bit better. After generating $1.4 billion in fiscal 2020 sales, Wall Street is looking for Ollie's to nearly hit $2.1 billion in revenue by fiscal 2023.
Ollie's Bargain Outlet is the type of company that's perfectly built for an economic contraction or recession. Billed as a company that seeks out excess inventory and closeout items that can be sold to the public at a substantially discounted price, Ollie's is providing bargains at a time when most workers and families are cash-strapped. According to the company's fiscal second-quarter update, comparable-store sales growth was up 40%! Even with the company tempering comparable-store sales growth for the remainder of the fiscal year, these growth figures shouldn't be discounted (pun fully intended).
Similar to the TJX Companies business model, Ollie's specifically targets brand-name merchandise when purchasing inventory for its stores. Consumers have long shown a penchant for favoring brand-name products at a discount.
And don't overlook the company's approximately 9 million loyalty reward members. Loyalty reward programs don't always pay off as intended, but Ollie's Army is specifically keeping consumers within its retail ecosystem.
Ollie's Bargain Outlet is a sneaky strong retail growth stock that appears to have plenty of upside.
Arguably one of the fastest-growing retail stocks on the planet at the moment is foam-filled furniture maker Lovesac (LOVE 1.59%). According to Wall Street, Lovesac is forecast to see its sales catapult from $233 million in fiscal 2020 to $462 million by fiscal 2024.
How the heck does a furniture maker double sales in this environment?
First off, it helps to offer products that stand out, as well as target a specific audience. Lovesac's "sactional" furniture speaks to those who favor functional furniture with a modern look. It's also targeted at a generally younger/millennial audience. Sometimes being a success in the retail space simply involves having a focused target audience and maintaining that focus, which is what Lovesac has been doing for years.
Another reason Lovesac has done so well is that it's seen a higher sell-through for sets. This is to say that its customers aren't just purchasing a single piece from Lovesac's line of products. In a growing number of instances, we've seen consumers purchase multiple pieces from a set, which is a boost to sales and margins.
Despite the coronavirus shutting down its brick-and-mortar showrooms, Lovesac's e-commerce sales have proved insanely resilient. In the fiscal first quarter of 2021, ended May 3, 2020, Lovesac reported 32.8% companywide sales growth from the prior-year period, with comparable internet sales up (drum roll) 258.3% from the prior-year period. This is absurdly strong growth that has the potential to push Lovesac into the recurring profit column by as soon as fiscal 2022.
Finally, there's a pretty good chance you've heard of this last high-growth retail stock: Amazon (AMZN).
Though Amazon seems to be dabbling in a little bit of everything these days, it's first and foremost an e-commerce company, which is where it generates the lion's share of its revenue. After bringing in $281 billion in companywide sales in 2019, Wall Street is counting on Amazon to hit $572 billion in annual sales by 2023. For those keeping score at home, that's a $1.5 trillion company growing at an even faster pace than Lovesac at $500 million in market cap. That's crazy!
When it comes to e-commerce sales, there's Amazon and everyone else. Bank of America analysts suggest that Amazon controls 44% of all U.S. online sales, with Walmart the next-closest competitor at 7% market share. With such a dominant online presence, Amazon is the clear-cut source for tens of millions of shoppers.
Another way Amazon dominates is by signing up members to Amazon Prime. Earlier this year, the company announced that the number of worldwide Prime users had surpassed 150 million. The fees collected from these Prime memberships are used by Amazon to undercut brick-and-mortar retailers on price, while the membership itself helps to keep users loyal to its ecosystem of products and services.
It would be unfair if I didn't also mention that Amazon is a tech play. The company's cloud-services segment, Amazon Web Services (AWS), generated a whopping $10.8 billion in sales this past quarter, and is responsible for $6.4 billion of the company's $9.8 billion in year-to-date operating income. These no question that AWS' juicy margins are playing a key role in Amazon's success.
Don't let Amazon's $3,100 share price or recent run-up scare you: This stock looks to be headed to $5,000 (or more) sooner than you think.