The retail industry is poised for strong Q4 growth, driven by mobile shopping, discount strategies, and rising consumer spending. Quick shipping and service sales, especially pre-Christmas, further boost momentum. Investors may consider buying high-growth retail stocks: Walmart Inc. (WMT), Abercrombie & Fitch Co. (ANF), and PriceSmart, Inc. (PSMT) for potential gains this season.

The U.S. Q4 outlook is positive, with retail sales exceeding expectations and inflation moving toward the Fed’s 2% target. However, core inflation remains at 2.8%. Market expectations for a December rate cut have dropped to 60% from 70%, as Fed officials indicate no immediate need for cuts, citing ongoing economic strength, which is favorable for the retail sector.

Meanwhile, Deloitte’s holiday retail survey predicts a strong year-end, with consumers planning to spend $1,778 on holiday purchases, an 8% increase from last year. Despite concerns over higher prices, a brighter economic outlook is driving spending in Q4. While gift spending remains steady, shoppers are increasingly focused on experiences and deals, taking advantage of year-end discounts and offers.

Moreover, the rise of supercenters, supermarkets, and hypermarkets, combined with adjusted buying habits and early promotions, aligns with the current economic environment, sustaining momentum in key retail categories. As a result, the National Retail Federation forecasts a 2.5% to 3.5% increase in 2024 retail sales, reaching $5.23 to $5.28 trillion, making the retail sector a promising investment opportunity.

Considering these conducive trends, let’s examine the fundamentals of the three retail picks mentioned above.

Walmart Inc. (WMT)

WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, membership-only warehouse clubs, e-commerce websites, and mobile commerce applications.

On October 30, 2024, WMT announced the use of AI and generative AI tools to improve holiday shopping with personalized gift ideas, a shopping assistant, and AI-powered search. They also expanded delivery services and customer support for a faster, more convenient experience.

On October 22, 2024, WMT announced the expansion of its Pharmacy Delivery service, integrating prescriptions with general merchandise into a single order for delivery. This service is now available in six states and will reach 49 states by January 2025, offering convenient delivery options, including same-day and on-demand delivery.

In terms of the trailing-12-month Return on Common Equity, WMT’s 18.97% is 84.8% higher than the 10.26% industry average. Its 11.56% trailing-12-month Return on Total Capital is 68.1% higher than the 6.88% industry average. Likewise, its 2.61x trailing-12-month asset turnover ratio is 200.6% higher than the industry average of 0.87x.

WMT’s revenue grew at a CAGR of 5.5% over the past three years. Similarly, its net income grew at a CAGR of 15.7% during the same period.

For the fiscal second quarter that ended June 30, 2024, WMT’s total revenues increased 4.8% year-over-year to $169.34 billion. Likewise, its adjusted operating income rose 8.5% from the year-ago value to $7.94 billion. Moreover, the company’s consolidated net income attributable to WMT came in at $4.50 billion, or $0.56 per common share.

Street expects WMT’s EPS and revenue for the quarter ended October 31, 2024, to increase 4.1% and 4.4% year-over-year to $0.53 and $166.44 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. WMT’s stock has gained 60.9% year-to-date to close the last trading session at $84.52.

WMT’s POWR Ratings reflect its strong fundamentals. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Stability and Sentiment and a B for Growth, Momentum, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #9 out of 36 stocks. Click here, to see WMT’s ratings for Value.

Abercrombie & Fitch Co. (ANF)

ANF and its subsidiaries operate as an omnichannel retailer internationally. The company offers an assortment of apparel, personal care products, and accessories for men, women, and kids under the Abercrombie & Fitch, Abercrombie Kids, Hollister, and Gilly Hicks brands. It sells products through its stores and various wholesale channels.

In terms of the trailing-12-month levered FCF margin, ANF’s 9.86% is 104.2% higher than the 4.83% industry average. Its 14.39% trailing-12-month EBIT margin is 79% higher than the 8.04% industry average. Likewise, the stock’s 1.60x trailing-12-month asset turnover ratio is 59.7% higher than the 1x industry average.

ANF’s EPS grew at a CAGR of 29.3% over the past three years. Moreover, its revenue grew at a CAGR of 9.1% over the past three years.

In the second quarter that ended on August 3, 2024, ANF’s net sales increased 21.2% year-over-year to $1.13 billion. Its operating income grew 95.5% year-over-year to  $175.63 million. Similarly, its net income attributable to ANF was $133.17 million, or $2.50 per share, up 134.1% and 127.3% over the prior-year quarter.

For the quarter ended October 31, 2024, ANF’s EPS and revenue are expected to increase 33% and 11.6% year-over-year to $2.43 and $1.18 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 108.8% to close the last trading session at $143.39.

It’s no surprise that ANF has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.

It has an A grade for Quality and a B for Growth. Within the B-rated Fashion & Luxury industry, it is ranked #13 out of 61 stocks. To see ANF’s Value, Momentum, Stability, and Sentiment ratings, click here.

PriceSmart, Inc. (PSMT)

PSMT owns and operates U.S.-style membership shopping warehouse clubs in the United States, Central America, the Caribbean, and Colombia. The company offers both basic and private-label consumable and non-consumable products under the Member’s Selection brand, including groceries, cleaning supplies, health and beauty aids, meat, produce, deli items, seafood, and poultry.

In terms of the trailing-12-month Capex / Sales, PSMT’s 3.43% is 8.8% higher than the 3.15% industry average. Likewise, its 6.87% trailing-12-month Return on Total Assets is 71.2% higher than the 4.01% industry average. Moreover, the stock’s 2.44x trailing-12-month asset turnover ratio is 180.9% higher than the 0.87x industry average.

PSMT’s revenue grew at a CAGR of 10.7% over the past three years. In addition, its EBITDA grew at a CAGR of 11% during the same period.

PSMT’s total revenues for the fiscal fourth quarter ended August 31, 2024, rose 9.6% year over year to $1.23 billion. Its operating income increased 53.1% year over year to $49.20 million. Also, PSMT’s adjusted net income and adjusted net income per share improved 42.8% and 44.6% year over year to $29.07 million and $0.94, respectively.

Analysts expect PSMT’s EPS and revenue for the quarter ending November 31, 2024, to increase 9.7% and 6.3% year-over-year to $1.36 and $1.24 billion, respectively. Over the past year, the stock has gained 26.8% to close the last trading session at $87.13.

PSMT’s bright prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

PSMT has an A grade for Growth and a B for Value, Momentum, and Stability. Within the Grocery/Big Box Retailers industry, it is ranked #13. To access PSMT’s additional ratings for Sentiment and Quality, click here.

What To Do Next?

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WMT shares rose $0.15 (+0.18%) in after-hours trading Friday. Year-to-date, WMT has gained 61.88%, versus a 24.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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