Despite the resurgence of the COVID-19 cases and ongoing supply chain disruptions, the consumer discretionary industry has been enjoying continued investor attention thanks to pent-up consumer demand and rising consumer spending. Investors’ interest in the consumer discretionary industry is evident in the Consumer Discretionary Select Sector SPDR ETF’s (XLY) approximate 5% gains over the past six months.

According to the Commerce Department, U.S. consumer spending increased 0.8% in August. In addition, retail sales rose 0.7% in August despite expectations of a 0.8% decline. Spending on consumer discretionary products is expected to grow further in the coming months because of the holiday season.

So, we think it could be wise to bet on fundamentally strong consumer discretionary stocks Starbucks Corporation (SBUX), The TJX Companies, Inc. (TJX), and Tapestry, Inc. (TPR). All three names have rallied in price over the past few months and are expected to generate significant returns in the fourth quarter.

Starbucks Corporation (SBUX)

World-renowned specialty coffee company SBUX in Seattle, Wash., operates through three segments: Americas, International, and Channel Development. It runs roughly 32,000 stores and offers its products under the Starbucks, Teavana, Seattle’s Best Coffee, and Evolution Fresh brands.

On June 23, SBUX announced that it would open its first location in Barbados this year, in partnership with Caribbean Coffee Traders Limited, bringing its unique Starbucks experience to local customers for the first time. This move is expected to expand its market reach.

The company’s revenue surged 78% year-over-year to $7.50 billion for its fiscal third quarter, ended June 27, 2021. SBUX’s non-GAAP operating income came in at $1.54 billion versus a $530.20 million operating loss in the prior year. Its non-GAAP EPS was $1.01 versus a $0.46 loss per share in the year-ago period.

For its fiscal year 2021, analysts expect SBUX’s EPS and revenue to increase 176.9% and 24%, respectively, year-over-year to $3.24 and 29.17 billion. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. 

It’s no surprise that SBUX has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. In addition, the stock has a B grade for Momentum, Growth, and Quality.

Click here to see SBUX’s ratings for Sentiment, Value, and Stability as well. In addition, SBUX is ranked #9 of 47 stocks in the A-rated Restaurants industry.

The TJX Companies, Inc. (TJX)

Off-price apparel and home fashions retailer TJX operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International. The Framington, Mass.-based company operates 1,271 T.J. Maxx, 1,131 Marshalls, 821 HomeGoods, 48 Sierra, 34 HomeSense stores, tjmaxx.com, marshalls.com, and sierra.com in the United States.

On August 18, Ernie Herrman, the CEO and President of TJX said, “We see numerous opportunities to continue to gain market share and improve our profitability in the medium to longer term. We are confident in our ability to reach our long-term strategic vision of TJX becoming a $60 billion company.”

TJX’s net sales surged 81.1% year-over-year to $12.08 billion in its fiscal second quarter, ended July 31, 2021. The company’s total assets grew 8.3% year-over-year to $73.6 million, while its net income came in at $ 785.68 million, versus a $214.22 million loss in the year-ago period. Also, its EPS was $0.64, compared to an $0.18 loss per share in the prior year’s quarter.

Analysts expect TJX’s EPS and revenue to increase 851.6% and 49.7%, respectively, year-over-year to $2.95 and 48.11 billion in fiscal 2022. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters. 

TJX’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to a Buy in our proprietary rating system.

The stock has an A grade for Sentiment and a B grade for Quality and Growth. Within the A-rated Fashion & Luxury industry, TJX is ranked #13 of 63 stocks. To see TJX’s ratings for Value, Momentum, and Sentiment as well, click here.

Tapestry, Inc. (TPR)

TPR provides luxury accessories and branded lifestyle products in the United States, Japan, Greater China, and internationally. The company operates through three segments: Coach, Kate Spade, and Stuart Weitzman. Also, it operates through a network of 939 Coach stores, 407 Kate Spade stores, and 104 Stuart Weitzman stores. TPR is headquartered in New York City.

On August 19, 2021, Joanne Crevoiserat, TPR CEO, said, “Our conviction is underscored by the plans announced today to return over $750 million to shareholders in Fiscal 2022 alone. Overall, we remain confident in our ability to accelerate growth and profitability across our portfolio long-term, enhancing value for all stakeholders.”

TPR’s net sales increased 126% year-over-year to $1.62 billion for its fiscal fourth quarter, ended July 3, 2021. The company’s non-GAAP operating income came in at $272.50 million versus a $69.80 million loss in the prior year. Its non-GAAP net income was $212.40 million, compared to a $70.40 million loss in the year-ago period. Also, its non-GAAP EPS came in at $0.74, compared to a loss per share of $0.25 in the prior year’s quarter.

TPR’s EPS and revenue are expected to increase 13.1% and 11.7%, respectively, year-over-year to $3.36 and $6.42 billion in fiscal 2021. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. 

TPR’s 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 Quality and a B grade for Value and Momentum.

We have also graded TPR for Growth, Stability, and Sentiment. Click here to access all TPR’s ratings. TPR is ranked #18 in the Fashion & Luxury industry.

SBUX shares were trading at $112.50 per share on Thursday afternoon, up $1.74 (+1.57%). Year-to-date, SBUX has gained 6.44%, versus a 19.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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