Retailers are evolving to meet the expectations of modern, tech-savvy shoppers. But many seem to be moving too slowly as their demand is lagging, causing the industry to underperform the market - over the past six months, retail stocks’ 1.5% return has fallen short of the S&P 500’s 9.3% gain.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one resilient consumer stock at the top of our shopping list and two that may face trouble.
Two Consumer Retail Stocks to Sell:
Dillard's (DDS)
Market Cap: $9.59 billion
With stores located largely in the Southern and Western US, Dillard’s (NYSE: DDS) is a department store chain that sells clothing, cosmetics, accessories, and home goods.
Why Is DDS Not Exciting?
- Dearth of new stores suggests management is prioritizing the optimization of its existing locations over growth
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Earnings per share have dipped by 8.9% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Dillard’s stock price of $565.80 implies a valuation ratio of 18x forward P/E. Read our free research report to see why you should think twice about including DDS in your portfolio.
Ollie's (OLLI)
Market Cap: $5.06 billion
Often located in suburban or semi-rural shopping centers, Ollie’s Bargain Outlet (NASDAQ: OLLI) is a discount retailer that acquires excess inventory then sells at meaningful discounts.
Why Does OLLI Fall Short?
- Modest revenue base of $2.73 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $85.48 per share, Ollie's trades at 18x forward P/E. If you’re considering OLLI for your portfolio, see our FREE research report to learn more.
One Consumer Retail Stock to Watch:
Dick's (DKS)
Market Cap: $20.04 billion
Started as a hunting supply store, Dick’s Sporting Goods (NYSE: DKS) is a retailer that sells merchandise for traditional sports as well as for fitness and outdoor activities.
Why Do We Like DKS?
- Fast expansion of new stores to reach markets with few or no locations is justified by its same-store sales growth
- Comparable store sales rose by 3.6% on average over the past two years, demonstrating its ability to drive increased spending at existing locations
- Projected revenue growth of 17.2% for the next 12 months is above its three-year trend, pointing to accelerating demand
Dick's is trading at $221.76 per share, or 14.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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