The stock market has been struggling since last year due to high inflation and the Fed’s rate hikes. While the interest rates might go higher for longer, the central bank might consider going for a lower magnitude given the cooling inflation and a slowing economy.

The latest jobs report showed wages grew slower than anticipated, while ISM’s Non-Manufacturing Purchasing Managers’ Index showed that the services industry contracted in December. Moreover, inflation has been lower than expected for two consecutive months in October and November 2022.

Lynn Franco, senior director of economic indicators at the Conference Board, said, “Inflation expectations retreated in December to their lowest level since September 2021, with recent declines in gas prices a major impetus.”

On the other hand, Consumer confidence climbed to 108.3 in December, a significant jump from the upwardly revised measure of 101.4 in November.

Given the backdrop, it could be wise to hold on to quality consumer stocks AutoZone, Inc. (AZO), Capri Holdings Limited (CPRI), and Dillard’s, Inc. (DDS).

AutoZone, Inc. (AZO)

AZO is involved in retailing and distribution of automotive replacement parts and accessories. The company operates in three segments: Auto Parts Store; ALLDATA; and e-commerce. The company offers various products for cars, sport utility vehicles, vans, and light trucks.

On September 19, 2022, Bill Rhodes, Chairman, President, and CEO, said, “I would again like to thank and congratulate our AutoZoners across the Company for their ongoing commitment to deliver great results and exceptional customer service.”

AZO’s trailing-12-month net income margin of 51.56% is significantly higher than the 35.58% industry average. Its trailing-12-month levered FCF margin of 11.34% compares with the 1.35% industry average.

AZO’s net sales came in at $3.99 billion for the fiscal first quarter ended November 19, 2022, up 8.6% year-over-year. The company’s gross profit came in at $1.99 billion, up 3.6% year-over-year, while its EPS came in at $27.45, up 6.9% year-over-year.

Street expects AZO’s revenue to increase 6.2% year-over-year to $17.26 billion in the fiscal year ending August 2023. Its EPS is expected to increase 8.2% year-over-year to $126.82 in the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 21.2% to close the last trading session at $2,441.75.

AZO’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

AZO has an A grade for Quality and a B grade for Sentiment. Within the A-rated Auto Parts industry, it is ranked #23 out of 62 stocks.

Beyond what is stated above, we’ve also rated AZO for Value, Growth, Momentum, and Stability. Get all AZO ratings here.

Capri Holdings Limited (CPRI)

CPRI is a global designer, marketer, distributor, and retailer of branded women’s and men’s apparel, footwear, and accessories. The company is headquartered in London and operates through three segments: Versace; Jimmy Choo; and Michael Kors.

In terms of forward EV/EBITDA, CPRI is currently trading at 9x, 4.49% lower than the industry average of 9.42x. Its forward EV/EBIT of 10.65x is 17.6% lower than the industry average of 12.92x.

CPRI’s trailing 12-month gross profit margin of 65.38% compares with the industry average of 35.58%. Its trailing-12-month levered FCF margin of 2.03% is higher than the 1.35% industry average.

CPRI’s revenue came in at $1.41 billion for the fiscal second quarter ended October 1, 2022, up 8.6% year-over-year. Moreover, the company’s net income came in at $224 million, up 12% year-over-year. Also, its EPS came in at $1.63, up 25.4% year-over-year.

CPRI’s revenue is expected to increase marginally year-over-year to $6.01 billion in 2023, while its EPS is expected to increase 10.1% year-over-year to $6.84. It surpassed EPS estimates in each of the four trailing quarters. Over the past three months, the stock has gained 45.9% to close the last trading session at $61.27.

CPRI’s overall B rating equates to a Buy in our POWR Ratings system. It has a B grade for Sentiment and Quality. The stock is ranked #9 out of 67 in the Fashion & Luxury industry.

We’ve also rated CPRI for Stability, Value, Momentum, and Growth. Get all CPRI ratings here.

Dillard’s, Inc. (DDS)

DDS operates retail department stores in the south-eastern, southwestern, and midwestern areas of the United States. Its stores offer merchandise, fashion apparel, accessories, cosmetics, home furnishings, and other consumer goods.

In terms of forward EV/Sales, DDS is currently trading at 0.80x, 30.4% lower than the industry average of 1.15x. Its forward Price/Sales of 0.82x is 6.75% lower than the industry average of 0.88x.

DDS’s trailing 12-month gross profit margin of 44.06% is higher than the industry average of 35.58%. Its trailing-12-month levered FCF margin of 11.29% is higher than the 1.35% industry average.

DDS’s net sales came in at $1.54 billion for the third quarter ended October 29, 2022, up 4.3% year-over-year. Its EPS came in at $10.96, up 11.7% year-over-year. Also, its total assets came in at $3.79 billion as of October 29, 2022, compared to $3.74 billion as of October 30, 2021.

Analysts expect DDS’s revenue to increase 5.2% year-over-year to $6.97 billion for the fiscal year ending January 2023. Its EPS is expected to increase 128% year-over-year to $46.96 in the same period. It surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 65.1% to close the last trading session at $326.98.

DDS’ steady prospects are reflected in its POWR Ratings. It has an overall B grade, equating to a Buy in our proprietary rating system.

Also, it has an A grade for Quality and a B for Value. It is ranked #6 in the same industry. Click here to access the DDS ratings for Growth, Stability, Sentiment, and Momentum.

AZO shares were unchanged in premarket trading Tuesday. Year-to-date, AZO has declined -0.99%, versus a 1.42% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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