The Biden administration’s ongoing stimulus efforts, combined with the vaccine rollouts across the country, are quickly ramping up the reopening of the U.S. economy. As a result, retail stocks are throwing off Covid-19’s shackles.
According to CNBC, March retail sales were up almost 10%, the second-best month on record.
One retail stock that has done well in 2021 is Big Lots (NYSE:BIG). It’s up 53.6% year-to-date through April 19. That compares to 11.0% for the U.S. markets as a whole and the 42.7% YTD return of the SPDR S&P Retail ETF (NYSEARCA:XRT). A stock that hasn’t done so well is Walmart (NYSE:WMT). It’s lost 2.7% YTD.
As consumers open their pocketbooks in the coming weeks, it’s not as easy as plunking down money on Walmart stock or Amazon (NASDAQ:AMZN) to make money off the resurgent consumer.
Omnichannel will remain a big part of retail. Maybe not in the same way before the pandemic, but companies like Levi Strauss (NYSE:LEVI) are looking to take advantage of the “vacancy tsunami” to grow their U.S. direct-to-consumer footprint.
That said, any retailer worth its salt must have its e-commerce business running smoothly if it wants to gain the long-term attention of investors.
- Apple (NASDAQ:AAPL)
- Williams-Sonoma (NYSE:WSM)
- Target (NYSE:TGT)
- Home Depot (NYSE:HD)
- Lululemon (NASDAQ:LULU)
- Deckers Outdoor (NASDAQ:DECK)
- Costco (NASDAQ:COST)
With that in mind, here are seven retail stocks to buy that have clearly got e-commerce fully locked in.
Retail Stocks to Buy: Apple (AAPL)
This week’s big Apple Event saw a huge list of tech upgrades for the newest generation of Apple products. It also saw Apple stray from its sleek white minimalism, as the company offers up a new line of products drenched in color, including a purple iPhone 12 Pro.
Apple’s iPad business generated approximately 9% of its overall revenue in 2020. Sales were robust in the second half of 2020 and into 2021. In the first quarter of fiscal 2021, iPad sales grew 41% to $8.44 billion, just shy of Apple’s Mac desktop business. If the iPad keeps this up, it will pass Mac sales in 2021.
According to ecommerceDB.com, Apple’s e-commerce revenue in 2020 was an estimated $32.8 billion or 11.9% of its overall revenue for the year of $274.5 billion.
While that might not seem like a lot, it’s all part of the ecosystem driving AAPL stock. Every piece of it — online, iTunes, in-store, wholesale, etc. — helps drive the Apple machine. The online store lets consumers feel like they’re part of the Apple ecosystem without actually being in an actual store.
It’s another selling tool to promote the brand.
While there’s no question Apple faces some issues in its business, it remains the largest and one of the healthiest public companies on the planet. That counts for a lot.
When I’m asked to write about retail stocks that consistently knock it out of the park, Williams-Sonoma usually makes the list.
In June 2016, I said it was one of the best stocks in retail. Basically, if you believed omnichannel was the future for retail, WSM stock had to be in your portfolio. It’s up 225% since then.
And a big chunk of the gains has come in the first four months of the year. WSM is up 66.4% YTD. A big reason is its e-commerce channel.
Williams-Sonoma reported Q4 2020 results in March. In the fourth quarter, its sales grew 24.4% year-over-year, with online sales accounting for 70% of its overall revenue. Same-store sales across all four of its brands increased by 20% or more over last year.
In 2020, sales increased by 15% to $6.8 billion, while adjusted earnings per share almost doubled to $9.04 a share from $4.84 a year earlier.
While it expects its business to return to more normal levels in 2021 — approximately 50/50 between online and brick-and-mortar — it plans to hit $10 billion in annual revenue in the next few years with a 15% operating margin, up from between 7.5-10% over the past five years.
One of the best CEO hires in recent retail history has got to be Brian Cornell at Target. The discount retailer was faltering badly when he joined the company in August 2014 after executive stints at PepsiCo (NASDAQ:PEP) and Sam’s Club. The first thing he did was close its Canadian stores at the cost of $5.4 billion.
Strong leadership requires making tough decisions. I doubt he’ll face anything quite so difficult over the remainder of his time at Target. And that includes dealing with the pandemic.
In 2020, Target gained $9 billion in market share by creating a shopping experience that is second to none in the U.S.
“Our combination of upgrading physical experience and the ease and convenience of our digital fulfillment options, I think is giving us an opportunity to win share and win trips and clicks with consumers no matter what they’re looking for,” Cornell said recently at the JPMorgan Virtual Retail Round-Up.
Target’s digital sales grew by more than $10 billion in 2020, driven in large part by 235% growth in same-day services. In 2020, digital sales accounted for 17.9% of Target’s overall business, double the contribution a year earlier.
TGT stock is up 17.6% so far this year. Cornell expects digital sales to continue to grow in 2021 and beyond. That should take the share price along for the ride.
Home Depot (HD)
I saw an interesting article from The Motley Fool that highlighted how Lowe’s (NYSE:LOW) is going after some of Home Depot’s share of the professional contractor’s business.
While HD generates approximately 45% of its revenue from professional contractors, Lowe’s only gets between 20-25% of its sales from this same cohort. Naturally, Lowe’s is trying to get to 45%, which would add as much as $20 billion in annual revenue.
While it’s an admirable goal, Home Depot has worked hard to gain the trust of professional contractors. It’s not about to give up market share to its rival.
That’s why it bought back HD Supply for $8 billion, including the assumption of debt in 2020. HD Supply was a former subsidiary it sold to private equity interests in 2007. HD Supply focuses on the distribution of maintenance, repair and operations (MRO) products for the multifamily and hospitality end markets.
I know this doesn’t have much to do with e-commerce, but ultimately, the company’s sales run through one bucket. The acquisition ensures that the bucket stays full.
As for e-commerce, eMarketer expects Home Depot to generate $20.02 billion in online sales in 2021, making it the seventh-largest retailer in the U.S. Amazon’s expected to be number one at $36.7 billion.
When you consider that most consumers think of Home Depot as a big-box retailer and not an e-commerce company, the fact that it’s only $16-billion shy of Amazon is actually quite an accomplishment.
I expect HD stock to continue to surprise on this front in the years to come. The share price is up 22.7% YTD.
Lululemon reported excellent Q4 2020 results at the end of March.
Among all the numbers thrown out, as is customary in these press releases and conference calls, was the fact its digital comps increased by 92% in the fourth quarter. That comp was more than double what it did in Q4 2019.
In 2018, LULU made the goal of doubling its e-commerce revenues by 2023. It reached its goal three years early in 2020. Its digital sales accounted for 52% of its $4.4 billion in total revenue for the year.
Nearly every aspect of its business did well in the fourth quarter. The company’s North American sales grew 21% in the fourth quarter while sales outside the U.S. and Canada rose by 47%. Women’s apparel saw a 19% increase in sales while men were up 17%.
As for its brick-and-mortar locations, it finished the fiscal year with 521, up 30 from 2019. The U.S. accounts for 60% of locations, followed by Canada (12%) and China (11%).
In 2021, Lululemon expects annual sales of $5.6 billion at the midpoint of its guidance, $180 million higher than analyst expectations. It remains on track to quadruple its international sales and double its sales of men’s clothing between 2018 and 2023.
Lululemon remains one of the world’s strongest retailers, online and off. The fact that the LULU stock price is down 6.13% in 2021 belies that strength.
Deckers Outdoor (DECK)
It’s hard to believe that I haven’t written about Deckers Outdoor more often in recent years. It’s possible I included the maker of Uggs in a gallery of stock recommendations. My aging brain is having a tough time remembering if that’s the case.
Anyway, in February 2019, I recommended DECK stock despite the fact it was approaching an all-time high of $146.90.
“Deckers has come a long way in two years. In two more years, Deckers shareholders likely will be celebrating a second time,” I wrote on Feb. 6, 2019.
“I hadn’t paid a lot of attention to Deckers in recent years, but the latest results suggest it’s ready to have another growth spurt. At $140, it’s a buy.”
How’s it done since? DECK stock is up 130%.
A big part of the company’s strong performance is its direct-to-consumer (DTC) business, which includes its retail stores and e-commerce websites. In the first nine months of 2020, its DTC business accounted for 42% of its overall revenue of $1.98 billion. That was up from 34% in 2019.
Deckers Outdoors’ HOKA brand is coming on like gangbusters. Through the end of December 2020, the brand’s overall sales were 57% higher year-over-year to $393.7 million, with DTC growing 111.9%.
While it doesn’t break out the split between store and online sales, it’s logical that Deckers’ various brands saw an uptick in e-commerce sales in 2020 due to the pandemic.
Anyone who’s ever been to a Costco knows about the $1.50 hot dog and soda combo. In 2020, Costco sold more than 151 million hot dogs to hungry shoppers before, during, and after their purchases had been made.
It doesn’t mess around with what works.
Late to the e-commerce party, Costco caught up in a hurry. On April 8, the company reported March sales that included a 57.7% increase in online sales, same-store sales growth of 16%, and overall sales of $18.21 billion, 17.6% higher than March 2020.
In the company’s second quarter, it reported that online sales jumped 75.8% while they grew 79.7% in the first six months of fiscal 2021. Online sales in February were up 91.1%, even better than the gains they had in March. Still, COST stock is down YTD, albeit less than 1%.
In 2019, Costco’s online sales accounted for less than 5% of its sales. By the end of 2020, they had doubled to more than 10%, and they’re still climbing.
It’s come a long way in recent years.
“If you go back three or four years ago, I don’t think we had good email addresses for much more than a third of our member base,” CFO Richard Galanti said in September 2020. “We didn’t focus on that kind of stuff. Today we have well over 60% and growing.”
Costco’s got a system that works. Even with online sales as part of the equation.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.