Despite high inflation, supply chain disruptions, and the resurgence of COVID-19 cases, retail spending surged on Black Friday this year, especially for department stores. According to Steve Sadove, on November 26, 2021, total retail sales climbed nearly 30% year-over-year, with apparel and department store sales leading the way. Holiday sales rose at their fastest pace in 17 years.

The S&P 500 also hit a record high recently because solid retail sales quelled concerns. Furthermore, with online sales hitting new highs, the industry is expected to sustain its bull run. According to a First Research publication, global department store sales are projected to grow at a 4% CAGR  through 2030.

So, we think it could be wise to bet on fundamentally strong department store stocks Macy’s, Inc. (M), Kohl’s Corporation (KSS), and Dillard’s, Inc. (DDS).

Click here to checkout our Retail Industry Report 

Macy’s, Inc. (M)

One of the nation’s premier omnichannel fashion retailers, M’s portfolio of brands includes Macy’s, Bloomingdale’s, and Bluemercury. The Cincinnati, Ohio-based company has roughly 726 retail stores and operates through its websites and mobile applications.

On November 18, Jeff Gennette, Chairman & CEO of M, said, “Looking ahead to the fourth quarter, we remain a special place for holiday shopping, and our robust omnichannel ecosystem is showing resilience in the face of labor and supply chain challenges and enables us to meet customer shopping needs with speed and convenience.”

For the fiscal third quarter, ended October 30, 2021, M’s net sales increased 36.3% year-over-year to $5.44 billion. Its net income came in at $239 million, compared to a $91 million loss in the year-ago period. Also, the EPS was  $0.76, versus a $0.29 loss per share in the previous period, and its gross margin came in at 41%, compared to 35.6% in the prior period.

M’s revenue is expected to be $24.22 billion in fiscal 2022, representing a 39.6% year-over-year rise. The company’s EPS is expected to increase 319.5% year-over-year to $4.85 in the current year. Also, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 123.4% in price to close yesterday’s trading session at $26.05.

It is no surprise that M has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. In addition, it has an A grade for Growth and Value and a B grade for Quality.

M is ranked #15 of 63 stocks in the A-Rated Fashion & Luxury industry. Click here to see the additional POWR Ratings for M (Momentum, Stability, and Sentiment).

Kohl’s Corporation (KSS)

One of the leading omnichannel retailers, KSS, which is based in Menomonee Falls, Wisc., provides various products, including branded apparel, footwear, and accessories, through its stores and website. It has come a long way from opening its first department store in Brookfield, Wisconsin, in 1962, to now operating more than 1,100 stores across 49 states.

On November 18, 2021, Michelle Gass, KSS CEO, said, “Our strategic efforts to transform Kohl’s into the leading destination for the active and casual lifestyle continue to build momentum. We delivered another quarter of record earnings with both sales and margins exceeding expectations. During the quarter, we drove accelerated growth in Active and successfully launched several new brand partnerships, including the initial rollout of 200 Sephora at Kohl’s stores, which are off to a great start.”

KSS’ total revenue increased 15.6% year-over-year to $4.60 billion in the third quarter, which ended October 30, 2021. Its non-GAAP net income came in at $243 million, up 12,050% year-over-year, and its non-GAAP EPS increased 16,400% year-over-year to $1.65.

Analysts expect KSS’ revenue and EPS to increase 25.4% and 409.3%, respectively, year-over-year to $18.85 billion and $7.30 in the current year. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 22.6% in price to close yesterday’s trading session at $49.20.

KSS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system.

KSS has an A grade for Value and a B grade for Quality. Within the Fashion & Luxury industry, it is ranked #22. Click here to see the additional POWR Ratings for Growth, Momentum, Sentiment, and Stability for KSS.

Note that KSS is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Dillard’s, Inc. (DDS)

Established retail company DDS operates in 250 sites and 32 clearance centers across 29 states and has its internet store. The Little Rock, Ark.-based company operates through two segments: Retail operations and Construction.

On September 28, 2021, DDS announced the launch of Nicola Bathie for Antonio Melani, the company’s latest limited-edition capsule collection debuted under the exclusive Antonio Melani brand. Nicola Bathie McLaughlin stated, “It was an absolute honor to take a step into the fashion world with a celebrated brand such as Antonio Melani.”

DDS’ net sales increased 44.5% year-over-year to $1.48 billion for its fiscal third quarter, ended October 30, 2021. Its net income came in at $197.30 million, up 518.5% year-over-year. Furthermore, its EPS increased 586% year-over-year to $9.81.

For its fiscal 2022, DDS’ revenue and EPS are expected to grow 47% and 1,489.6%, respectively, year-over-year to $6.52 billion and $38.63 In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 306.1% in price to close yesterday’s trading session at $251.84.

DDS’ strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.

In addition, it has an A grade for Growth, Value, and Quality. DDS is ranked #16 in the Fashion & Luxury industry. Click here to see DDS’ ratings for Stability, Momentum, and Sentiment.

Click here to checkout our Retail Industry Report 

M shares fell $0.04 (-0.15%) in premarket trading Wednesday. Year-to-date, M has gained 134.54%, versus a 29.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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