Costco Stock

The retail sector was getting dragged by some earnings disappointments.

While the next few quarters could be challenging, the economy should eventually return to a more secure footing. Finally, Five Below, the mall-based chain specializing in items like games and toys for $5 or less, should benefit from the economic reopening as its business model is based on store traffic and the "treasure hunt" experience of looking through its merchandise. The company continues to post strong top-line results, with comparable sales up 8.7% in April, but the bottom line could feel a pinch when the retailer reports earnings after hours on May 26. Costco may be the best example of what the market sees as an overpriced retail stock. What seems to be happening in the retail sector is that stocks are being "re-rated" based on economic headwinds such as inflation and supply chain issues. Both companies also cut their guidance for the year, warning that challenges from inflation and supply chain disruptions would persist.