Investors are drawn to consumer discretionary stocks due to their potential for significant returns, fueled by increased spending on non-essential goods and services during times of economic growth.

Given the industry’s tailwinds, investors could consider looking into fundamentally sound consumer discretionary stocks, Crocs, Inc. (CROX - Get Rating), The TJX Companies, Inc. (TJX - Get Rating), and Ralph Lauren Corporation (RL - Get Rating).

The consumer discretionary sector may gain from higher consumer spending, as shoppers are likely to treat themselves to non-essential products and experiences, potentially driving a rise in demand for businesses in this sector. Consumer Spending in the United States increased to $16.11 trillion in the third quarter of 2024 from $15.97 trillion in the second quarter of 2024.

In addition, U.S. retail sales rose by 0.7% month-over-month in November 2024, following a revised 0.5% increase in October and surpassing the expected 0.5% growth. This data further indicates strong consumer spending due to an underlying robust economy.

Considering these encouraging trends, let’s take a look at the fundamentals of the three best consumer discretionary stocks, starting with #3.

Crocs, Inc. (CROX - Get Rating)

CROX designs, develops, manufactures, markets, distributes, and sells casual lifestyle footwear and accessories for men, women, and children under Crocs and HEYDUDE Brand in the United States and internationally.

CROX’s trailing-12-month gross profit and EBIT margins of 58.15% and 26.16% are 53.2% and 227.5% higher than the respective industry averages of 37.94% and 7.99%.

CROX’s revenues for the third quarter that ended September 30, 2024, increased 1.6% year-over-year to $1.06 billion. Its gross profit came in at $633.34 million, up 8.9% from the year-ago quarter. The company reported net income of $199.80 million and $3.36 per common share, up 12.9% and 17.1% from the prior-year quarter, respectively.

Analysts expect CROX’s revenue for the fiscal fourth quarter ended December 2024 to increase marginally year-over-year to $963.35 million. For the same quarter, Street expects its EPS to be $2.27. The company surpassed its revenue and EPS estimates in each of the trailing four quarters, which is promising.

CROX’s stock has soared 5.4% over the past year to close the last trading session at $109.68.

CROX’s POWR Ratings reflect its positive outlook. The stock has a B grade for Quality and Value. It is ranked #23 in the 58-stock B-rated Fashion & Luxury industry. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Beyond what is stated above, we’ve also rated CROX for Growth, Momentum, Stability, and Sentiment. Get all CROX ratings here.

Stock #2: The TJX Companies, Inc. (TJX - Get Rating)

TJX operates as an off-price apparel and home fashion retailer in the United States, Canada, Europe, and Australia. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International. 

TJX’s trailing-12-month net income margin of 8.63% is 104.6% higher than the industry average of 4.22%. Its trailing-12-month EBIT margin of 11.07% is 38.6% higher than the 7.99% industry average. Also, the stock’s trailing-12-month EBITDA margin of 12.92% is 12.8% higher than the 11.46% industry average.

During the third quarter that ended November 2, 2024, TJX’s net sales rose 6% year-over-year to $14.06 billion, and its total segment profit grew 10.2% year-over-year to $1.84 billion. The company’s income before income taxes rose 9.3% from the year-ago value to $1.74 billion.

Furthermore, the company’s net income and EPS came in at $1.30 billion and $1.14, up 8.9% and 10.7% year-over-year, respectively.

Street expects TJX’s revenue and EPS for the first quarter (ending April 2025) to increase 5.6% and 6.8% year-over-year to $13.18 billion and $0.99, respectively. Moreover, the company topped the consensus EPS and revenue estimates in all four trailing quarters, which is impressive.

TJX’s stock has increased 26.4% over the past nine months and 42.7% over the past year to close the last trading session at $121.65.

TJX’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

TJX has a B grade for Stability, Momentum, and Quality. It is ranked #15 among 58 stocks in the same industry.

In addition to the POWR Ratings highlighted above, one can access TJX’s ratings for Growth, Value, and Sentiment here.

Stock #1: Ralph Lauren Corporation (RL - Get Rating)

RL designs, markets, and distributes lifestyle products in North America, Europe, Asia, and internationally. The company offers apparel, including a range of men’s, women’s, and children’s clothing; footwear and accessories, which comprise casual shoes, dress shoes, boots, sneakers, sandals, eyewear, watches, fashion and fine jewelry, scarves, hats, gloves, and umbrellas.

RL’s trailing-12-month net income margin of 10.15% is 140.5% higher than the industry average of 4.22%. Its trailing-12-month EBIT margin of 12.42% is 55.6% higher than the 7.99% industry average. Also, the stock’s trailing-12-month EBITDA margin of 15.72% is 37.3% higher than the 11.46% industry average.

During the third quarter that ended September 28, 2024, RL’s net revenues rose 6% year-over-year to $1.73 billion, and its gross profit grew 10.2% year-over-year to $1.16 billion. Furthermore, the company’s net income and net income per common share came in at $147.90 million and $2.31, up 8.9% and 10.7% year-over-year, respectively.

Street expects RL’s revenue and EPS for the third quarter (ended December 2024) to increase 4% and 8% year-over-year to $2.01 billion and $4.50, respectively. Moreover, the company topped the consensus EPS and revenue estimates in all four trailing quarters, which is impressive.

RL’s stock has increased 42.4% over the past nine months and 67.3% over the past year to close the last trading session at $243.05.

RL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.

RL has an A grade for Quality and a B for Sentiment. It is ranked #11 out of 58 stocks in the same industry.

Click here to access the additional RL ratings (Growth, Momentum, Stability, and Value).

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TJX shares were trading at $120.25 per share on Friday afternoon, down $1.40 (-1.15%). Year-to-date, TJX has declined -0.46%, versus a -0.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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