The exchange-traded fund tracks the performance of the S&P Retail Select Industry Index, a collection of retail stocks from the S&P Total Market Index. XRT currently holds 80 stocks invested across $38.7 billion in net assets.
The top three sub-industries by weight are apparel retail (23.19%), automotive retail (22.41%), and other specialty retail (21.83%).
It’s been downhill for retail stocks since November 2021. The ETF has dramatically underperformed the S&P 500 over the past five years. XRT has a 24.1% return, less than half the index’s return over the same period.
Now is a good time to bet that some of the holdings will be the leading retail stocks for 2024.
I’ll select a small, mid, and large-cap stock for my trio to make it interesting. They’ll all be from XRT’s 80 holdings.
Tractor Supply (TSCO)
Tractor Supply (NASDAQ:TSCO) stock is down more than 3% year-to-date. However, over the past five years, it’s up 143%, almost three-fold better than the S&P 500.
“TSCO is one of the most consistent retailers I know. Over the past decade, it has increased revenues every year and operating income in all but one. With more than , it has delivered 25 consecutive quarters of comparable transaction count. In other words, traffic’s not letting up, and customers continue to buy more,” I wrote in 2014.
Fast forward to 2023.
It has 2,181 stores at the moment, with plans to grow the number to , adding approximately 80 stores in 2024 and 90 stores a year after that. At the end of the second quarter, it had more than 31 million members in its Neighbors Club rewards program. It added 5 million over the past year alone.
The company lowered its 2023 guidance at the end of July. It now expects net sales of at least $14.8 billion, down from $15.0 billion. Same-store sales growth of 1.9% at the midpoint of its previous guidance, down 210 basis points. However, its earnings per share will only be 15 cents lower at $10.30.
To finance this accelerated growth, it plans to do sale-leaseback transactions on 117 stores it owns. That’s an intelligent capital allocation decision, in my opinion.
I continue to like TSCO stock, and that’s among the aforementioned reasons why it made my top retail stocks to watch this year.
Bath & Body Works (BBWI)
Bath & Body Works (NYSE:BBWI) is another retailer whose share price has floundered in 2023. BBWI is down nearly 15% year-to-date (YTD).
The specialty retailer provides customers with liquid hand soaps, body lotions, candles, home fragrance diffusers, and more. It was part of L Brands until August 2021, when it and its stable mate, Victoria’s Secret & Co. (NYSE:VSCO), were separated into two independent, publicly-traded companies. L Brands ceased to exist after the separation, with shareholders getting one VSCO share for every three BBWI shares.
While Bath & Body Works did incredibly well during the pandemic, its spending became excessive, forcing activist investor Third Point LLC — who owns 6% of the company — to push for change. The company added veteran financial banking executive Thomas Kuhn to its board, and Third Point backed off.
In 2022, the company hired Unilever (NYSE:UL) veteran Gina Boswell as its CEO.
Third Point has invested in BBWI because it feels a turnaround in its earnings story will deliver a premium valuation in the future.
“We believe the demand backdrop in 2024 will improve as inflationary and rising interest rate pressures on the consumer potentially subside,” said Barron’s report of Barclays analyst Adrienne Yih’s comments to clients.
At the same time, Yih BBWI to “overweight” from “equal weight” with a $4 increase in her price target to $45, 23% higher than where it’s currently trading.
Hibbett (NASDAQ:HIBB) is the small-cap stock of the trio of top retail stocks to watch. Its stock is down 37% YTD. However, it’s up nearly 107% over the past five years.
Although I don’t believe I’ve ever recommended the sporting goods retailer for InvestorPlace, I’ve followed the Alabama company for many years. It’s a very streaky stock. Buying while it’s down makes total sense.
The retailer’s history dates back to 1945. Today, it has 1,143 stores spread across three banners: Hibbett (939), City Gear (188), and Sports Additions (16). In Q1 2024, it reported same-store sales growth of 4.1%, revenue of $455.5 million, and net income of $35.9 million, down from $39.3 million a year earlier. Gross margins were the culprit, 330 basis points lower due to higher promotional activity.
While it lowered its 2024 outlook in May due to a challenging business environment, it still plans to open between 30 and 40 stores this year.
“Notwithstanding our more cautious near-term consumer outlook, we believe Hibbett remains well positioned for the long-term to continue to grow and increase market share,” stated CEO Mike Longo in the Q1 2024 press release.
Hibbett reports Q2 2024 results on Aug. 25. I would wait until after it reports earnings. Do not hesitate to buy should its share price fall on the news.
Long-term, it’s a winner.
On the date of publication, Will Ashworth 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.