We knew e-commerce was booming during the pandemic. And we knew that many Americans would be changing their buying habits. I’ m not sure that many investors would have been willing to bet on the resurgence of in-person shopping. But the recent growth in retail stocks is changing that narrative.
As earnings season is showing, consumers are taking their pent-up demand outside their homes. Analysts are citing several reasons that are contributing to this perfect storm. Many Americans are flush with stimulus dollars. A return to work or socializing is creating demand for an in-person experience where clothes can be tried on in real time (particularly for those who may have gained a pandemic pound or two). And also, many people’s desire to be outside is taking precedent over the convenience of e-commerce.
Then again, this shouldn’t be surprising. In fact, it seems to be the logical extension of the omnichannel model that has come to define retail sales. If it is all about the customer experience (CX), then successful companies will have to find a way to deliver that experience in the way their customers demand.
For some consumers that may be entirely online, but for the purposes of this article, we’re taking a look at several retail stocks that are benefiting as customers return to their stores.
- Target (NYSE:TGT)
- Home Depot (NYSE:HD)
- Kohl’s (NYSE:KSS)
- L Brands (NYSE:LB)
- Dollar General (NYSE:DG)
- Five Below (NASDAQ:FIVE)
- Signet Jewelers (NYSE:SIG)
Retail Stocks: Target (TGT)
If you’re talking about retail stocks that offer a strong customer experience, then Target needs to be near the top. Prior to the pandemic, some analysts were souring on TGT stock because it was focusing on its digital footprint.
That move turned out to be prescient, as the pandemic temporarily closed many of the company’s stores. Because the company’s omnichannel model was already seeded into their customer’s mind, it successfully made the pivot and is coming out of the pandemic in a strong financial position.
As evidence of that, in its most recent quarter, Target delivered earnings per share (EPS) of $3.69 on revenue of $23.88 billion. That kind of growth is temporarily belaying concerns about the stock’s valuation as some analysts become concerned about Target’s ability to repeat its 2020 performance.
However, Target is one year away from becoming a Dividend King, which is an elite title used to describe a group of companies that have increased their dividend for at least 50 consecutive years.
The Home Depot (HD)
Among retail stocks, Home Depot was another of the strongest performers during the pandemic. HD stock is up 24% in the past 12 months. And the stock is up 17.6% so far in 2021.
Americans made productive use of their time at home to tackle projects. And many homeowners discovered that the open-concept home they loved before the pandemic was not as lovable when work and school were being done at home. Home Depot’s commitment to an omnichannel model via its “One Home Depot” plan helped keep revenue strong.
Another trend benefiting HD stock was the surge in homeownership. That trend is only increasing despite a shrinking supply of homes.
With some analysts suggesting that supply chains will remain disrupted until 2022, Home Depot should continue to be able to generate strong margins. However, Home Depot’s streamlined supply chain will be put to the test in 2021.
Retail Stocks: Kohl’s (KSS)
If Target is the preeminent name in strip-mall shopping, then Kohl’s may be a close second. Kohl’s is in a battle with Target for the dollars of the suburban shopper. In recent years, Kohl’s has been trying to carve out a unique niche. And the company’s recent earnings report is proving that they may have a winning formula.
Kohl’s posted EPS of $1.05. This blew away analysts’ expectations for an EPS of negative three cents. The company also delivered $3.89 billion in revenue for the quarter. Another highlight of this report was the 7% operating margin that was the highest first-quarter rate the company had posted in eight years. And the company said that 30% of their sales were of the digital variety.
These numbers were an obvious year-over-year beat. But what should be encouraging is that the numbers were higher than the 61 cents EPS and $3.82 billion of sales Kohl’s reported during the same quarter in 2019. With a market capitalization of just 8.6 billion, Kohl’s will be a bargain if they can continue to grow sales.
L Brands (LB)
L Brands stock is up 296% in the last 12 months on the strength of its e-commerce business. Looking at the LB stock chart on May 31, 2021, the stock price is consolidating and could be ready to take the next leg up.
As a company that is anchored in many shopping malls, L Brands stands to benefit as Americans return to in-person shopping. In the company’s most recent earnings report in May, it delivered earnings per share of $1.25. This was significant because analysts had raised their expectations prior to earnings.
Unlike Target or Kohl’s, L Brands targets a specific niche among retail stocks. While perhaps best known for its Victoria’s Secret brand, L Brands is also home to the Bath & Body Works brand.
And that’s where the story gets interesting. The company recently announced plans to spin off both its Victoria Secret and Bath & Body Words brands into separate publicly traded companies. This should be a benefit to investors and a catalyst for LB stock.
Retail Stocks: Dollar General (DG)
While pent-up demand will be a catalyst for many retail stocks, our bifurcated economy continues to make dollar stores relevant. And one of the best plays in this category is Dollar General. The company’s retail footprint covers areas that are not covered by big-box stores.
If the company’s expansion plans are any indication, demand is not a problem. The company announced plans to open over 1,000 new stores in 2021. If those plans come to fruition, one in every three retail stores to open this year will be Dollar General stores.
Many of these will feature its Popshelf brand. The company introduced Popshelf as an opportunity to capture higher-income consumers. As part of the company’s expansion, Popshelf stores will be featured as stand-alone stores and store-in-store remodels.
One of the critiques of the dollar store model is the lack of healthy options. In an effort to combat this, Dollar General will continue its expansion into items such as frozen meats and produce.
The bullish outlook, however, is not showing up in the DG stock price which is down 2% so far in 2021.
Five Below (FIVE)
Whereas Dollar General is trying to break into the high-end segment among discount chains, Five Below is already there. The retail store has built its brand by enticing tweens and teenagers with items that are hard to find in other stores.
This treasure hunt model is reflected in the company’s stock price. If you bought Five Below stock four years ago, your shares have tripled. And just in the last year, despite the pandemic, FIVE stock is up 69%.
This is particularly notable since, unlike many of the retail stocks on this list, Five Below does not have a strong e-commerce presence. This may be why the stock is only up 1% so far in 2021. Analysts will be paying close attention to the company’s earnings report in June to see how earnings and revenue growth measure up as the field becomes more competitive.
With that in mind, it makes sense that the company is looking to aggressively expand its physical footprint. Five Below is planning to build 158 new stores nationwide in 2021. Each store is only around 8,500 square feet, so this expansion shouldn’t hurt the company’s bottom line too much.
Retail Stocks: Signet Jewelers (SIG)
The pandemic forced many retailers to find innovative ways to shake things up. This was the case for Signet Jewelers. The company was forced to shut many of its brick-and-mortar stores (many of which will not be reopening).
However, through its “Path to Brilliance” initiative the company increased its digital sales. Through this program, Signet has trained over 700 virtual sellers. And consumers have the opportunity to do “virtual try-on’s.” This is being reflected in the company’s online sales which jumped 6.7% to $164.7 million and moved the company from being below the sector average to well above it.
And that is a big reason why SIG stock has jumped 435% in the last 12months. This includes a growth of 122% so far in 2021. Another reason is that the company initiated a payment program that allows consumers to buy an item and pay for it in four bi-weekly installments.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.