The retail season gets more compressed every year. Summer has just started and many retailers are already in full back-to-school mode. You may not be on the hunt for sales on backpacks and notebooks, but this may be a good time to look for retail stocks to buy.
Retail sales have been sluggish for the last year. Adjusted for inflation, they’ve been negative. In the first quarter, many retailers acknowledged that consumers, particularly low- and middle-income consumers, are cutting back on non-essential purchases.
But the back-to-school season changes the definition of essential. Parents magazine reported a Retail Dive study revealing “parents will spend nearly 22% more on back-to-school purchases in 2024.”
That same study notes that parents who earn more than $50,000 don’t plan to cut back on back-to-school shopping. That same article cited a NerdWallet study that revealed 20% of parents plan to use “buy now pay later” to fund their back-to-school purchases.
Those results won’t be reflected in this round of corporate earnings, but if these companies are on your list of retail stocks to buy, you’ll want to pay attention to their back-to-school forecast when they report earnings.
Walmart (WMT)
Walmart (NYSE:WMT) is a logical choice as one of the retail stocks to buy for back-to-school season. The company is synonymous with low prices and many lower-income Americans are saying they will be looking for discounts and shopping at discount retailers.
I recently included Walmart on a list of seven stocks investors should be watching for during this earnings season. The company’s continued AI and automation initiatives are a reason it could be one of the retail stocks to buy and hold for years.
But with WMT stock up 32% in 2024, some investors may wonder if the best growth is behind it, particularly with the stock up about 19% in the last three months. The company is forecasting being at the high end or slightly above its sales and operating income guidance for the year.
However, Walmart will revisit its full-year guidance when it releases earnings on August 15.
At that point, the company will have a better feel for how back-to-school shopping is going. Although it’s important to note that on July 10, Piper Sandler initiated coverage on WMT stock with an “Overweight” rating and an $81 price target that is over 10% higher than the consensus estimate.
Costco (COST)
Costco (NASDAQ:COST) is a perennial favorite as one of the retail stocks to buy. However, with COST stock trading above $830 a share as well as being up more than 50% in the last 12 months, it’s fair to ask if the stock is too expensive.
However, the company recently announced it will be increasing its membership fee. This is a move that has been overdue based on the company’s past history. There are two reasons why investors should take this as a bullish sign.
First, Costco has a retention rate of over 90%. That means it’s unlikely that the company will experience a significant impact to revenue from this increase. Costco shoppers, on average, tend to be at an income level which has been allowing them to manage through inflation.
Second, the membership fee payment is immediately accretive to the company’s bottom line. This may take a quarter or two to show up, but at a time when earnings will be closely watched, Costco is in a position to outperform.
DICK’S Sporting Goods (DKS)
The start of another school year for many parents starts with fall sports. Those participants need their gear much earlier than the first day of school. DICK’S Sporting Goods (NYSE:DKS) has been the place to go.
In a familiar theme with the retail stocks to buy in this article, DKS stock is outperforming the retail sector. It’s up more than 50% in the past 12 months and nearly 10% since the stock dipped in May.
That dip has been gobbled up since DICK’S reported earnings in May. At over $212 per share, investors may not want to chase the stock higher. However, this is a time when it will pay to buy the best. When it comes to retail stocks, DKS stock has to be considered among that group of stocks.
Trading at just over 15x forward earnings, the stock looks attractively valued compared to the sector average. Plus, investors get a compelling dividend that pays $4.40 per share on an annual basis.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.