When it comes to stocks, the COVID-19 pandemic sure had its big winners, but it was the losers that made heads turn as the coronavirus ascended upon the world.

Few stones were left unturned, but when it comes to major drops, sharp recoveries, and everything else in between, few industries can compete with the retail sector.

The pandemic is not over yet, and many parts of “retail” still have a long way to go to win back investors’ confidence.

Today, I want to highlight one bright spot in the sector and show you 2 names I’m watching to play the recovery.

Retail is Shaky, One Spot Shines

Just this Tuesday, August 17th, the latest US Retail Sales Report came out and many viewed it as disappointing.

Overall, we saw a bigger month-over-month drop than anticipated – something analysts generally attributed to the fears over potential new restrictions due to the COVID Delta variant spread.

Still, some places did better than others. Here’re some key numbers to bear in mind:

• Total July retail sales are down 1.1% vs June, compared to an analyst consensus figure of -0.3%.

• Year-over-year total sales are up 15.8%.
• Online and non-store sales are down 3.1% vs June, but up 5.9% year-over-year

Remember my recent bearish outlook for Amazon? Well, these figures only go to strengthen one of my key points – people are tired of being locked in, and may actively avoid online shopping, just for the sake of getting out of the house.

Fair enough, is there any data to support that? Well, let’s see how those brick-and-mortar categories did:

• Drug Stores sales rose 0.1% vs June, and 9.2% YoY.

• Building and Garden Supplies dropped 1.2% vs June, but are up 7.5% YoY.
• Department stores were down 0.3% vs June.

The figures are clearly ahead of the online retailers, still, here comes what we’ve all been waiting for:

• Clothing and accessory stores dropped 2.6% vs June, but are up 43.4%(!!!) YoY.

Well, that sure stands out from the single digits growth we’re seeing elsewhere. Consumers are clearly willing to shell some money out on clothing – and we should take notice.

Especially since there are some great early birds…

Macy’s and Kohl’s Lead The Way

I’m not just assuming we might see a stronger performance in the clothing/accessory, department store area – we’ve already got some pretty notable overachievers.

Namely, both Macy’s (M) and Kohl’s (KSS) delivered some very solid beats yesterday morning:

• Kohl’s reported EPS of $2.48 vs $1.26 est, Revenues of $4.45B vs $3.96B est.

The company also hiked its full-year guidance and announced plans to buy back $500-$700M worth of shares thru 2021.

• Macy’s reported EPS of $1.29 vs $0.23 est, Revenues $5.65B vs $4.98 est.

Management upped the guidance as well, announced a $500M share buyback, and even went as far as to reinstate a $0.15/sh dividend.

The market sure didn’t expect a rebound so swift, and unsurprisingly both names are gaining quite strongly on the announcement:

(Macy’s, 1-yr Chart)

(Kohl’s, 1-yr Chart)

The consumers have spoken and I think it’s only fair that we listen to them.

Here’re two stocks that I think may get a boost on the data:

Lululemon Athletica – LULU

• Market Cap: 50.97B

• Free share float: 114.38M
• Short Interest: 1.48%
• ATR: 8.65

Forget about the overall sector strength, Lululemon is already great, period!

The company is, by all means, a retail darling: it has a strong brand, a loyal following, and, most importantly, its business model works.

I mean just look at that chart – the pandemic sure didn’t hit this one very hard!

LULU is already consolidating at all-time highs, following a clean breakout, maybe some positive sector data and good earnings (currently, date unconfirmed, but estimated for early September) are exactly what it needs to start the next momentum leg higher.

I’ll be careful around the earnings readout, but overall I’m bullish on the stock as long as we can base above $400 for a move into the $500 area.

Levi Strauss & Co – LEVI

• Market Cap: 11.06B
• Free share float: 83.60M
• Short Interest: 4.31%
• ATR: 1.07

Levi’s Jeans maker may not be as cool, progressive, and modern-day as its peer from above, but by no means is it doing shabby.

The company maintained profitability in 2020 and the chart performed decently when compared to some other names in the space.

Add to that the iconic brand and the loyal customer base that seems eager to go on a spending spree – and you’ll see why I think this one can overdeliver.

The stock has some notable support in the $26 area and just as notable a resistance at $30.

If the support holds over the next few days, I can easily see a bounce back into the $30 area and, market permitting, finally above that.