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5 Stocks to Watch This Week (UAL, DG, KMX, FIVE, ULTA)

November 28, 2022

Back to regularly scheduled programming this week!

Here are some names that LikeFolio is keeping on our radar this week:

United Airlines (UAL)

  • According to TSA checkpoint numbers, air travel has nearly returned to normal. Traveler throughput for the month of November is +12% higher YoY and just -5% below 2019 levels.
  • UAL forward looking booking mentions show some signs of slow-down, contributing to a bearish-leaning earnings signal at the moment. Booking mentions surged in summer, rocketing +82% higher YoY. In Q3, that growth rate tempered to +7% YoY. Now, Q4 booking mentions are pacing a point lower YoY.
  • The price of air travel continues to weigh on consumers, with ticket price increases (+21% in the second quarter of 2022) outpacing generic rates of inflation. Consumer mentions expressing concerns about the cost to fly have increased +71% YoY. This is most significantly impacting leisure travel, mentions of which have dropped -32% QoQ while traveling for work remains consistent.
  • Long-term, UAL appears to be navigating capacity hurdles, customer relations, and labor shortages better than some peers. The airline is currently tied with Southwest (LUV) at the top of the pack. American Airlines is struggling the most to keep consumers happy, with sentiment levels just about 40% positive (low, even for airline standards).

Dollar General (DG)

  • Consumer mentions of shopping at Dollar General dipped -3% in the third quarter. The same quarter prior, a significant deceleration from a Q2 growth rate of +25% YoY.
  • This demand cool-down contributed to a cautiously bearish signal ahead of DG earnings Thursday, Dec. 1 before the bell: -26. Consumer demand does appear to be improving in the 4th quarter, so this could be a more positive signal for guidance.
  • Many consumers turned to discount retailers amid rising inflation, specifically the rising cost of groceries. Food price concern mentions have increased by more than +100% YoY and mentions of searching for deals have increased by +27% in the same time frame. Consumer mentions of shopping for groceries continue to gain steam, rising +4% YoY on top of +25% growth in 2021.
  • Dollar General’s investments in grocery appear to be lifting the company above discount peer Dollar Tree, which specializes in less essential items. This divergence was certainly true last quarter, when Dollar General posted results above market expectations while Dollar Tree cut its guidance.

CarMax (KMX)

  • Last quarter, CarMax painted a dismal picture for the used vehicle segment: “Macro factors, including vehicle affordability that stem from persistent and broad inflation, climbing interest rates, and low consumer confidence, all led to a market-wide decline in used auto sales. In addition, wholesale values were affected by steep depreciation in the quarter.”
  • KMX posted lower retail and wholesale volume (unit sales slipped -6.4%) in Q2, but total sales were bolstered by growth in average selling prices. Total sales came in at $8.1 billion, +2% YoY.
  • LikeFolio purchase intent data suggests demand is weakening in the third quarter, with mentions of purchasing a vehicle with CarMax slipping by -22% YoY. Trend data mirrors CarMax demand. Consumer mentions of purchasing a used vehicle have slipped by -19% QoQ, and -3% YoY.
  • KMX Q3 earnings aren’t expected until the end of December, but current metrics support a cautiously bearish outlook. We’ll be tracking KMX demand and broader macro trends through the end of the quarter.

Five Below (FIVE)

  • Consumer Mentions of shopping at Five Below rose significantly in the third quarter (+37% YoY) as consumers hunted for bargains. This demand growth outperformed discount retailers DG and DLTR, with demand levels that dipped -3% and -2% respectively.
  • What is driving this comparative outperformance? Consumers like the experience of shopping at Five Below, and the quality of products sold. FIVE Happiness is 74% positive, +9 points higher vs. DLTR, and +14 points higher vs. DG.
  • In addition, Five Below has taken steps to expand its fulfillment offerings by launching a “buy online pick up in store” option, making the shopping experience more seamless for busy customers.
  • Five Below’s business model is targeted to value-minded consumers, which is beneficial in the current inflationary environment. 

Ulta (ULTA)

  • The Lipstick Index is still poppin'. When consumers don’t have the money to splurge on that vacation or a new car, a simple tube of lipstick is treated as a cost-effective substitute. This benefits cosmetic retailers, like Ulta Beauty.
  • In fact, the beauty industry is the ONLY U.S. retail industry that is experiencing unit growth in 2022LikeFolio trend data mirrors this strength. Makeup demand has increased +52% YoY as consumers seek out chemical-free “natural” products. Demand for clean makeup & skincare products are up +33% and +31%, respectively.
  • Ulta Beauty brand buzz is steadily climbing into the Holiday season, rising +19% YoY and +6% QoQ. The company’s diverse offerings, including affordable drug-store brand offerings appeals to cash-strapped consumers hunting for deals and quality.
  • The company is benefitting from macro tailwinds and a strong start to the Holiday shopping season.
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