The retail industry had a rough 2020, but you wouldn’t know it when looking at the SPDR S&P Retail exchange-traded fund, which delivered a return of 79% over the last year. Two retail stocks have outperformed that benchmark recently. Shares of American Eagle Outfitters (NYSE:AEO) and Nordstrom (NYSE:JWN) have more than doubled off their 2020 lows, as both companies show signs of emerging from the pandemic on a stronger footing.
Here’s why these two retail stocks could deliver more gains in 2021.
1. American Eagle Outfitters
American Eagle stock was underperforming the broader market entering 2020, but the business performance was telling a different story. In fiscal 2019, the company reached a record $4.3 billion in revenue, driven by 20 consecutive quarters of comparable-store sales growth.
Investors were probably disappointed with AEO’s performance on the bottom line, where earnings per share weren’t improving enough to push the stock price up. However, management is targeting a 10% operating margin by 2023, with revenue reaching $5.5 billion. The margin improvement would translate to a 15% compounded annual growth rate in operating income.
Management expects flattish revenue growth from the flagship American Eagle brand, which continues to control the No…