Shares to buy: 2 retail stocks set for a bull run in 2023

The huge gains retail stocks experienced during the pandemic have all but disappeared over the past year as the cost of living crisis has been limited exponentially. However, the retail industry was able to reverse its losses and continue to grow this year. So, I’m looking for stocks to buy, and these two stocks look good to me.

The supply chain problem is simple

Aside from high inflation hurting consumers’ pockets, retail and e-commerce chains also had inventory issues to deal with last year. Retailers over-order ahead of the economic slowdown and are left with tons of inventory they can’t get rid of. Couple this with higher shipping costs and it’s no wonder it’s a disaster for many companies.

That said, the tide can turn, according to Peter Garnry, Head of Equity Strategy at Saxo. The analyst cited three reasons why he is bullish on the sector:

1. Container freight rates and supply chain delivery times have normalized. This increases profitability and customer satisfaction.
2. Discretionary spending in Western households is stronger despite inflation and lower real incomes. Consumer companies surprised with revenue growth in the latest earnings season.
3. Cost cutting among e-commerce companies will increase profits significantly this year. Online advertising prices are also falling.

Amazing ASOS

Some of Garnry’s predictions have been proven so far, especially with ASOS (LSE:ASC), which provided a trading update last week. The stock has fallen 72% in the past year due to excess inventory and a declining balance sheet.

However, ASOS’s share price is now up 40% since the start of the year, buoyed by a better-than-feared update. In the release, CEO José Calamonte presented the group’s 12-month turnaround plan, which was very favorable to shareholders.

1. Improve inventory management.
2. Simplify and reduce costs.
3. Create a strong and flexible balance sheet.
4. Strengthen management and refresh company culture.

These factors combined with the clearing of excess stock and £300m worth of profit optimization, could see the growth stock’s bottom line improve over time. After all, the board expects to return to profitability and positive free cash flow by the end of the financial year. As such, a rise in stock prices remains possible.

NEXT in line

More shares I want to buy NEXT (LSE:NXT). Like its peers, the stock fell in 2022, down 35%. However, it also did so again this year after a stellar Q3 update that beat analysts’ estimates. NEXT’s stock price is now up 10% in 2023 alone.

Additionally, the conglomerate has updated its FY23 profit guidance as it now expects pre-tax profit to be £20m higher, at £860m.

Having said that, the guidance for next year takes a hit as FTSE 100 stalwart expects full price sales to decline 1.5% due to restricted discretionary spending. This will reduce pre-tax profits by 7.6% to around £795m. Even so, margins should increase as costs begin to drop into the spring and summer.

If shipping costs continue to fall, the route to margin expansion remains possible, thus making NEXT stock profitable for me. After all, the company is still continuing its share buyback program, showing insiders’ confidence that a rally is possible from current levels.