The retail industry experienced hardship at the start of the pandemic last year as it massively disrupted the global supply chain of merchandise, but many businesses bounced back adapting themselves to the rise in online shopping. While some still continue to face serious downturns as the rate of permanent store closures ramp up, the top retail players have been able to adapt, innovate. and persevere.
With people flocking to the web at unprecedented levels to order various goods, many retailers have gotten smarter about using inventory stored in stock rooms to satisfy shoppers’ digital purchases. Moreover, with a resumption of economic activities and another round of fiscal stimulus, the retail industry should soon be looking at a further increase in demand.
The trajectory of the pandemic and speedy vaccine rollout should undoubtedly shape the 2021 retail landscape. While many retail companies are still facing severe challenges to operate smoothly in this environment, retail giants like Walmart Inc. (WMT), Target Corporation (TGT), and Dollar Tree, Inc. (DLTR) have quickly turned the situation to their advantage by changing their product mix and supply chain. As such, these stocks should continue to reap the rewards and deliver solid returns in upcoming months.
Walmart Inc. (WMT)
WMT is a leading retail corporation operating in three groups — Walmart U.S., Walmart International, and Sam’s Club. The pandemic has created a huge opportunity for the company to develop its digital presence, after dominating the brick-and-mortar retail industry.
On January 29, WMT partnered with Nationwide to provide an affordable first-of-its-kind pet prescription program — Nationwide Pet Rx Express. This should help WMT increase its membership substantially by adding convenience with the streamlined claims process at Walmart pharmacies.
Also, in January, the company announced an expanded vision and new name for its media business, which is now called Walmart Connect. This new name reflects WMT’s unique ability to accelerate the connection between brands and its 150 million weekly customers. By expanding its offerings, the company is expected to create measurable value for its partners and customers in the near future.
WMT’s revenue increased 5.2% year-over-year to $134.70 billion for the third quarter that ended October 31, 2020. Operating income grew 22.5% from the year-ago value to $5.80 billion, while EPS rose 56% from the prior-year quarter to $1.81. The company’s Sam’s Club comp sales increased 11.1%, while e-commerce sales grew 41% over this period. WMT’s membership income increased 10.4%.
The consensus EPS estimate of $1.30 for the next quarter (ending April 31, 2021) indicates a 10.2% improvement from the year-ago value. Also, WMT beat the Street EPS estimates in three of the four trailing quarters, which is impressive. The consensus revenue estimate of $555.01 billion for next quarter represents a 5.9% rise in growth from the same period last year. The stock has gained 21.2% over the past year.
WMT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A which equates to a Strong Buy in our proprietary ratings system. WMT also has a Stability Grade of A, a Value Grade of B, and a Momentum Grade of B. Of the 41 stocks in the Grocery/Big Box Retailers industry, WMT is ranked #2. The industry is strong, with a rating of A.
In total, we rate WMT on 8 different levels. Beyond what we stated above, we also have given WMT grades for Growth, Sentiment, and Quality. Get all the WMT ratings here.
Target Corporation (TGT)
Headquartered in Minnesota, the general merchandise retailer TGT provides home decor products, electronics, toys, seasonal offerings, and other merchandise like beauty and household essentials. The company sells its products through its stores, and digital channels, including Target.com.
On January 27, TGT announced a limited-edition collection with Levi Strauss & Co. to feature an assortment of home and lifestyle items and marking Levi’s first Home partnership. This new Levi’s for Target limited-edition collection is set to launch on February 28, 2021. This strategic partnership should allow TGT to offer its customers the very best national brands alongside their assortment of owned brands.
TGT’s total revenue has increased 21.3% year-over-year to $22.63 billion in the third quarter that ended October 31, 2020. Operating income rose 93.1% from the prior-year quarter to $1.94 billion, while EPS increased 44.5% year-over-year to $2.02 over this period. The company’s digital comparable sales grew 155 percent, accounting for 10.9 percentage points of TGT’s comparable sales growth.
The consensus EPS estimate of $9.22 for 2021 indicates a 44.3% increase year-over-year. Moreover, TGT beat the Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $92.71 billion for the current year indicates a 18.7% increase from the same period last year. The stock has gained 58.6% over the past year.
It’s no surprise that TGT has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. TGT has a Sentiment Grade of A, and Growth and Value Grade of B.
To see additional POWR Ratings for Stability, Momentum, Quality, and Industry for TGT, click here.
Dollar Tree, Inc. (DLTR)
Founded in 1986, DLTR is a variety retail store, operating through the two segments of Dollar Tree and Family Dollar. Its stores also provide apparel and accessories merchandise comprising clothing, fashion accessories, and shoes, and seasonal and electronics merchandise. The Dollar Tree segment operates 7,505 stores under the Dollar Tree and Dollar Tree Canada brands, while the Family Dollar segment operates 7,783 stores under the Family Dollar brand.
In December, DLTR announced the appointment of Winnie Park as a new independent director to the company’s Board of Directors. Her knowledge and experience as both a retail CEO and an independent board member in the public retail sector should allow her to significantly contribute to DLTR’s growth and help it achieve its goal of developing more ways to serve its customer base.
DLTR’s net sales for the third quarter that ended October 31, 2020 has increased 7.5% year-over-year to $6.18 billion. Gross profit grew 12.9% from the year-ago value to $1.92 billion, while gross margin increased 150 basis points to 31.2%. The company’s operating income grew 29.9% from the year-ago value to $465.5 million, while EPS rose 28.7% year-over-year to $1.39.
The consensus EPS estimate of $1.33 for the quarter ending April 31, 2021 indicates a 27.9% improvement year-over-year. Moreover, DLTR beat the Street EPS estimates in each out of the trailing four quarters, which is impressive. The consensus revenue estimate of $6.36 billion for the next quarter represents a 3.6% increase year-over-year. The stock has gained 18.1% over the past year.
It’s no surprise that DLTR has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. DLTR has a Growth Grade of A and Value Grade of B. In the Grocery/Big Box Retailers industry, it is ranked #6. And this industry is rated A.
Click here to see the additional POWR Ratings for DLTR (Momentum, Stability, Quality and Sentiment)
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WMT shares were trading at $139.48 per share on Monday afternoon, down $1.01 (-0.72%). Year-to-date, WMT has declined -3.24%, versus a 0.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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