The retail industry rearranged its operations to focus mainly on online platforms and delivery networks amid social distancing mandates last year. However, with the vaccination rollout in full swing, big box stores have lately been witnessing rising foot traffic. Retail sales have accelerated significantly on pent-up demand for discretionary products thanks to rising consumer spending. The demand from online and physical outlets has driven a 17.6% year-over-year increase in retail sales in the first five months of 2021, surpassing original forecasts.
Consequently, the National Retail Foundation (NRF) has upgraded its 2021 retail sales forecast and expects personal consumption expenditures to grow 7.5% year-over-year rather than 4.5% predicted earlier. NRF Chief Economist Jack Kleinhenz said, “We are seeing clear signs of a strong and resilient economy.”
As economic activities continue to build up steam, the shares of the big box store operators are expected to deliver significant returns through the remainder of 2021. As a result, we believe the shares of leaders in this space, Walmart Inc. (WMT), Costco Wholesale Corporation (COST), Target Corporation (TGT), and Big Lots, Inc. (BIG), should be attractive bets now.
Walmart Inc. (WMT)
WMT is the largest retailer globally, operating in 24 countries and e-commerce websites offering a wide range of daily needs items. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
On July 14, WMT partnered with Symbotic to Implement Industry-Leading Supply Chain Automation System. Through this partnership, the company aims to optimize the process end-to-end to address the evolving customer habits now and in the future.
On June 24, WMT announced that the Walmart MoneyCard issued by Green Dot (GDOT) will now be offered as a demand deposit account to enhance customer convenience and provide exclusive cashback services.
On June 17, WMT’s CEO unveiled its partnership with DroneUp to create a delivery network operated by drones. This should allow WMT to strengthen its e-commerce business and expand its market reach while reducing its operating costs.
WMT’s net sales increased 2.6% year-over-year to $137.16 billion in the fiscal first quarter ended April 30. Its operating income grew 32.3% from the year-ago value to $6.91 billion. WMT’s revenues came in at $138.31 billion, indicating a 2.7 % rise year-over-year. Cash and cash equivalents balance rose 52.8% from the prior-year quarter to $22.89 billion over this period.
The consensus revenue estimate of $567.47 billion for the next year indicates a 2.5% increase year-over-year. Street expects the company’s EPS to rise 4.7% to $6.26 next year. The company’s EPS is also expected to improve 9.1% in the ongoing year considering the last year. Moreover, WMT surpassed Street EPS estimates in three of the trailing four quarters, which is impressive. Shares of WMT have gained 9.6% over the past year to close yesterday’s trading session at $142.55.
It is no surprise that WMT has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has an A grade for Stability and Sentiment, and a grade B for Value and Quality. Among the 40 stocks in the A-rated Grocery/Big Box Retailers industry, WMT is ranked #2.
Beyond what we’ve stated above, we have also rated WMT for Momentum and Growth. Click here to view all WMT ratings.
Costco Wholesale Corporation (COST)
COST operates membership warehouses in the United States and other countries. The Issaquah, Wash., company provides branded and private-label products in a range of merchandise categories. It also offers dry and packaged foods, groceries, appliances, and electronics. COST maintains an online presence too. The company had 809 warehouses worldwide as of April 22.
On July 13, COST declared a quarterly dividend on its common stock of 79 cents per share, payable August 13, 2021.
On July 8, its reported net sales of $18.92 billion for June, for the five weeks ended July 4, 2021, indicating a 16.9% increase versus the same period last year. This improvement in net sales demonstrates the company’s impressive performance and expanding customer base.
COST’s revenue increased 21.5% year-over-year to $45.28 billion in its fiscal third quarter, ended May 9. Its operating income grew 41.1% from its year-ago value to $1.66 billion, while its net income improved 45.6% year-over-year to $1.22 billion. The company’s EPS increased 45.5% year-over-year to $2.75.
Analysts expect COST’s revenues to increase 11.1% year-over-year to $59.29 billion in the current quarter, ending August 31, 2021. A $3.41 consensus EPS estimate for the current quarter indicates a 12.2% rise from the same period last year. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of COST have gained 32.3% over the past year and 21.9% over the past six months.
COST has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In addition, the stock has a grade of B for Sentiment, Quality, and Stability. COST is ranked #13 in the Grocery/Big Box Retailers industry.
To see additional COST ratings for Value, Growth, and Momentum, click here.
Target Corporation (TGT)
TGT is a general merchandise retailer in the United States. It provides a wide range of products, including food assortments, apparel, accessories, home decor products, electronics, household essentials, and various in-store amenities. TGT operates through its stores; and digital channels, including Target.com. TGT is based in Minneapolis, Minn.
On July 26, it announced its limited-time-only collaboration with author, illustrator, and animator Christian Robinson. The collection includes more than 70 items across home, apparel, and books for kids and babies that encourage discovery and play. With increased time spent at home amid the social distancing mandates, this launch should be widely demanded and help the company to generate a substantial rise in revenues.
TGT and Ulta Beauty (ULTA) shared the details of the launch of Uta Beauty at TGT in July. It is slated to begin rolling out in more than 100 Target stores nationwide and online this month. This should allow TGT to elevate the customer experience across its multi-category business to drive traffic.
TGT’s sales increased 23.3% year-over-year to $23.88 billion in its fiscal first quarter, ended May 1. Its operating income grew 407% from its year-ago value to $2.37 billion. Its net earnings stood at $2.10 billion, up 639.8% from the same period last year. The company’s EPS increased 643.2% year-over-year to $4.17.
The Street expects TGT’s revenues to increase 8.8% year-over-year to $101.78 billion in the current year. The $12.3 consensus EPS estimate for the current year indicates a 30.4% improvement year-over-year. TGT has an impressive earnings surprise history also; it beat the consensus EPS estimates in each of the trailing four quarters.
TGT has gained 109.5% over the past year, and the stock has gained 47.9% year-to-date.
It is no surprise that TGT has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. TGT has a B grade for Sentiment, Value, and Quality. It is ranked #1 in the Grocery/Big Box Retailers industry.
Click here to view additional TGT ratings for Growth, Stability, and Momentum.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in TGT for a 65% gain. Learn more about the RTR service here.
Big Lots, Inc. (BIG)
BIG in Columbus, Ohio, is a community retailer operating more than 1,400 Big Lots stores in 47 states. The company offers products under various categories, including furniture, food, and décor.
On June 22, BIG expanded its apparel assortment with new brands, offering customers everyday wear at affordable prices. This should allow BIG to attract fresh customers, translating to an improvement in its financials.
BIG’s net sales increased 13% year-over-year to $1.63 billion in its fiscal first quarter ended May 1. Its operating profit grew 64.6% from its year-ago value to $122.55 million, while its net income improved 91.7% year-over-year to $94.56 million. The company’s EPS has increased 107.9% year-over-year to $2.62.
Analysts expect BIG’s revenues to increase 1.4% year-over-year to $6.24 billion in the next year. A $6.79 consensus EPS estimate for the next year indicates a 0.7% rise from the current year. The company also surpassed consensus EPS estimates in each of the trailing four quarters.
Shares of BIG have gained 44.9% over the past year and 34.2% year-to-date.
BIG has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In addition, the stock has an A grade for Value and Quality. It is ranked #21 in the same industry.
To see additional BIG ratings for Growth, Sentiment, Stability, and Momentum, click here.
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WMT shares were trading at $141.94 per share on Monday afternoon, down $0.61 (-0.43%). Year-to-date, WMT has declined -0.73%, versus a 18.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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