Many retailers are gearing up for the new school year by offering diversified products and expanding their inventories. Following the CDC’s guidance for reopening U.S. schools this fall, retail stores are expected to see higher demand for back-to-school products. While the rapidly spreading COVID-19 Delta variant is hindering the recovery of in-store sales, retail companies with strong digital channels should be able to maintain or increase their sales in the coming months.
The strong vaccination drive and consumer spending helped unit sales volume for apparel stores and brands in the United States rise 21% in the second quarter of 2021. In addition, as President Biden emphasizes reopening schools full-time this fall and takes policy steps he deems necessary regarding this, back-to-school spending is expected to exceed $100 billion this year.
Given this backdrop, we think established retail stocks Target Corporation (TGT), The TJX Companies, Inc. (TJX), Ross Stores, Inc. (ROST), and The Gap, Inc. (GPS) could be solid additions to one's portfolio.
Target Corporation (TGT)
TGT is a retail behemoth that is based in Minneapolis, Minn. The company operates 1,914 stores in the United States and has 46 distribution centers. It has an ISS Governance QualityScore of 1, indicating minimal governance risk.
On August 19, TGT opened four new sortation centers aimed at boosting its delivery services. These new sites are a part of its $4 billion annual investment to improve its efficiency and customer satisfaction.
On July 15, TGT stocked its quality school supplies to gear up for the forthcoming back-to-school and college season. Regarding this, executive Vice President and Chief Merchandising Officer Jill Sando said, “Whether returning to in-person learning, continuing to learn from home or moving into a dorm room for the first time, Target is prepared to help our guests with everything they need for the season--with the best assortment, shopping experience, and value all in one convenient click or trip.”
In the second quarter, ended July 31, TGT’s total revenue increased 9.5% year-over-year to $25.16 billion. This can be attributed to an 8.9% rise in comparable sales. Its operating income increased 7.2% from the same period last year to $2.47 billion. Its net earnings rose 7.4% from its year-ago value to $1.82 billion. And its EPS improved 8.9% from the prior-year quarter to $3.65.
The $12.40 consensus EPS estimate for the current year reflects a 31.6% improvement from the same period last year. Likewise, the $102.08 billion consensus revenue estimate for the current year represents a 9.1% increase year-over-year. Moreover, TGT has an impressive earnings history; it topped consensus EPS estimates in all the four trailing quarters. The stock has gained 63.6% in price over the past year to close yesterday’s trading session at $250.65.
TGT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Value, Sentiment, and Quality. In addition, TGT is ranked #1 of 40 stocks in the A-rated Grocery/Big Box Retailers industry.
We have also graded TGT for Growth, Momentum, and Stability. Click here to access all TGT ratings.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in TGT for a 65% gain. Learn more about the RTR service here.
The TJX Companies, Inc. (TJX)
TJX is a home fashion goods and off-price apparel retailer operating in the United States, Canada, Europe, and Australia. It conducts business through four segments—Marmaxx; HomeGoods; TJX Canada; and TJX International. TJX is headquartered in Framlington, Mass.
On May 28, TJX reinstated its share repurchase program, under which it plans to buy back approximately $1 billion - $1.25 billion worth of common stock. The move reflects its confidence in its business operations and should increase total earnings for existing shareholders.
TJX’s net sales increased 81% year-over-year to $12.10 billion in its fiscal second quarter, ended July 31. Its EBT rose 1245.8% from the same period last year to $1.05 billion. Its net income and EPS came in at $785.68 million and $0.64, respectively, reflecting a substantial improvement from their negative year-ago values.
The Street’s $2.61 EPS estimate for the current year indicates a 741.9% increase from the same period last year. The company’s revenue is expected to increase 44% year-over-year to $46.28 billion in the current year. The stock has gained 41% over the past year and 13.5% over the past three months.
TJX’s POWR Ratings reflect this positive outlook. The stock has an overall B rating, which equates to Buy. TJX also has an A grade for Sentiment, and a B grade for Quality. It is ranked #21 of 64 stocks in the A-rated Fashion & Luxury industry.
In addition to the POWR Rating grades we’ve highlighted, one can see TJX ratings for Growth, Value, Momentum, and Stability here.
Ross Stores, Inc. (ROST)
ROST operates off-price retail apparel and home fashion stores under two brands—Ross Dress for Less and dd’s DISCOUNTS stores. The Ross Dress for Less brand is the largest off-price apparel and home fashion chain in the United States. ROST, which is based in Dublin, Calif., currently operates 1,896 stores across 40 states in the U.S., the District of Columbia, and Guam.
On July 19, ROST declared that it had opened 22 Ross Dress for Less and eight dd’s DISCOUNTS stores across 11 states in June and July. This is aligned with the company’s plans to open 60 new stores in its fiscal year 2021. This locational expansion should strengthen ROST’s presence in the retail apparel industry.
In its fiscal second quarter, ended July 31, ROST’s sales increased 79% year-over-year to $4.80 billion. Its net earnings improved 2,141.8% from its year-ago value to $494.26 million, while EPS rose 2,216.7% from the same period last year to $1.39.
Analysts expect ROST’s EPS to come in at $4.35 in the current year, indicating a 457.7% rise year-over-year. An $18.19 billion consensus revenue estimate for the ongoing year reflects a 45.1% improvement over the same period last year. In addition, ROST beat the Street’s EPS estimates in three out of the four trailing quarters, which is impressive. Over the past year, ROST has gained 38.6% to close yesterday’s trading session at $123.79.
It’s no surprise that ROST has an overall B rating, which translates to Buy in our POWR Ratings system. In addition, the stock has an A grade for Growth and Quality. It is ranked #19 in the Fashion & Luxury industry.
Click here to see additional POWR Ratings for Value, Momentum, Stability, and Sentiment for ROST.
The Gap, Inc. (GPS)
GPS is an apparel retailer that sells clothing, accessories, and personal care products under Old Navy, Gap, Banana Republic, Athleta, Intermix, and Janie and Jack brands. It operates 3,100 stores and 615 franchises globally, as of March 4. The company also has an e-commerce website. GPS is based in San Francisco, Calif.
On August 18, GPS-affiliated brand Old Navy announced the launch of BODEQUALITY, a size-inclusive clothing line that offers women’s styles in all sizes for the same prices. Based on customer research, this approach will likely increase its ability to serve and create a greater customer base.
On July 22, the company launched an integrated rewards program for four of its brands. John Strain, Chief Customer, Digital and Technology Officer at Gap Inc., said, “Our goal is to turn our customers into lifelong loyalists by reimagining our Rewards program and creating unique, personalized experiences that will make it easier to shop, earn and redeem rewards across our family of brands.”
GPS’ net sales for the first quarter, ended May 1, increased 89.4% year-over-year to $3.99 billion. The company’s gross profit improved 508.2% to $1.63 billion for the prior-year quarter. Its net income and EPS improved 117.8% and 117.1%, respectively, year-over-year to $166 million and $0.43.
Analysts expect the company’s EPS to increase 184.4% year-over-year to $1.78 in the current year. The $17.14 billion consensus revenue estimate for the current year reflects a 24.2% improvement from the same period last year. In addition, GPS surpassed consensus EPS estimates in three of the four trailing quarters. The stock has gained 87.2% over the past year to close yesterday’s trading session at $29.02.
GPS has an overall B rating, which equates to Buy in our POWR Ratings system. In addition, it has an A grade for Momentum, and a B grade for Growth, Value, Sentiment, and Quality. The stock is ranked #11 of 64 stocks in the A-rated Fashion & Luxury industry.
Click here to see GPS’ rating for Stability.
TGT shares were trading at $251.61 per share on Wednesday morning, up $0.96 (+0.38%). Year-to-date, TGT has gained 44.00%, versus a 20.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.4 Retail Stocks to Buy Ahead of the New School Year appeared first on StockNews.com