When the COVID-19 pandemic struck, there was no reason to think a retailer, any retailer, would be able to come out alive. After all, the economy looked at a month or more of shut-down, and most retailers survive on a thread of profits. Most analysts failed to consider the health of the economy going into the pandemic and what that meant for spending power.
The U.S. economy was on the brink of acceleration way back in February of 2020. It was a different time, employment was at its strongest in decades, and the consumer was flush. Yes, the stimulus checks helped drive the trends I am alluding to, but spending on Stay-at-Home, Home-Improvement, and Outdoor Living began well before those checks were mailed.
We are about to show you a group of stocks that are able to defy the pandemic. Some of them were perfectly positioned for the crisis and surfed it like the wave of profits it was. Some were able to adjust and come back fighting. Others circled the wagons and waited out the storm. In all cases, the businesses are supported by a healthy eCommerce presence and benefit from brand recognition, a combination that has digital sales up triple-digits from 2019. And some of them pay a good dividend too!
Quick Links
- Tractor Supply Company
- Home Depot
- Lowe's Companes
- Williams-Sonoma
- BJ's Wholesale Club
- Chewy.Com
- Big Lots
#1 - Tractor Supply Company (NASDAQ:TSCO)
Tractor Supply Company (NASDAQ:TSCO)
It is tough to overstate how well-positioned for the pandemic Tractor Supply Company is. The first thing to keep in mind is that it operates in smaller and more rural areas with no or reduced competition from Walmart, Target, Home Depot, and Lowes. Now, consider the fact that Tractor Supply Company is the modern-day version of the old country store. The store that had (has) everything you need “for life out here” in the country. That’s what Tractor Supply Company is, and its products range from Chicken Feed to Chainsaws and everything in between.
Tractor Supply Company was a growth story before the pandemic, but now things are different. Tractor Supply Company experienced a game-changing event that has put it on the top-tier of American retailers. So I don’t leave you without any hard numbers consider this. Tractor Supply Company revenue grew more than 30.0% during the 2nd quarter of the year, the worst-hit in terms of shut-downs, and driven by a triple-digit increase in eCommerce channels. More than enough to keep the 1.0% dividend safe and ensure an 11th consecutive increase will come next year.
About Tractor Supply
Tractor Supply Company operates as a rural lifestyle retailer in the United States. The company offers various merchandise, including livestock and equine feed and equipment, poultry, fencing, and sprayers and chemicals; food, treats, and equipment for dogs, cats, and other small animals, as well as dog wellness products; seasonal and recreation products comprising tractors and riders, lawn and garden, bird feeding, power equipment, and other recreational products; truck, tool, and hardware products, such as truck accessories, trailers, generators, lubricants, batteries, and hardware and tools; and clothing, gift, and décor products consist of clothing, footwear, toys, snacks, and decorative merchandise.
Read More - Current Price
- $53.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $57.98 (7.5% Upside)
#2 - Home Depot (NYSE:HD)
Home Depot and its closest competitor, Lowes, benefit from location location location. When the pandemic struck, and folks were shut away at home, neither of these stores missed a beat. In fact, comps at Home Depot shot surged more than 25% on demand for goods in all categories.
It was, in fact, the Home Depot report that tipped us off to what we believe will drive economic activity over the next several quarters. Inventories are falling. Home Depot reported an 8.4% decrease in its inventory, and that figure is low. Other retailers are reporting much larger declines. Regardless, a decline in inventory is good for Home Depot’s bottom line.
When it comes to dividends, Home Depot is our favorite of the group. The stock pays a little more than 2.0% and has a history of aggressive distribution increases. With a low 52% payout ratio and 25% CAGR the next dividend increase, the 12th consecutive, could be a big one.
About Home Depot
The Home Depot, Inc operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. The company also offers installation services for flooring, water heaters, bath, garage doors, cabinets, cabinet makeovers, countertops, sheds, furnaces and central air systems, and windows.
Read More - Current Price
- $392.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $426.00 (8.5% Upside)
#3 - Lowe's Companes (NYSE:LOW)
Lowe’s Companies, Inc (NYSE:LOW)
Lowes was equally well-positioned when the pandemic hit, if not more so. After struggling with comps and revenue growth for years, Lowes’ turnaround plan really took traction during and after the pandemic. Now, with major suppliers like Simpson Manufacturing bringing their products back to Lowes shelves, the company is in a position to steal market share from Home Depot.
Regarding the 2nd quarter? Lowe’s comps jumped 32% to best Home Depot and DOUBLE the consensus estimates. Looking forward, the recently released Existing Home Sales figures guarantee sales will remain strong. The +24% reported equates to many new coats of paint, bundles of welcome mats, and truckloads of landscaping supplies. Lowe’s dividend yield is about 1.45%, and the distribution has been growing for 30 years.
About Lowe's Companies
Lowe's Companies, Inc, together with its subsidiaries, operates as a home improvement retailer in the United States. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating. It also provides home improvement products, such as appliances, seasonal and outdoor living, lawn and garden, lumber, kitchens and bath, tools, paint, millwork, hardware, flooring, rough plumbing, building materials, décor, and electrical.
Read More - Current Price
- $247.72
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 16 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $280.85 (13.4% Upside)
#4 - Williams-Sonoma (NYSE:WSM)
Williams-Sonoma (NYSE:WSM)
Williams-Sonoma is an interesting retail story for the pandemic because it wasn’t expected to do all that well. The company is a higher-end retailer of, guess what, home improvement items, and the analyst’s community didn’t have faith in the consumer. At least not for costlier “discretionary” items. What the analysts failed to consider is that Williams-Sonoma’s business was mostly eCommerce, to begin with. When the pandemic struck, it was among the best-positioned for stay-at-home and home-improvement spending.
Williams-Sonoma reported YOY revenue growth acceleration across its three brands; Williams-Sonoma, Pottery Barn, and West Elm. Growth across all segments topped 8.8% on a YOY basis with notable strength in the eCommerce segment. The eCommerce segment grew 44% on a YOY basis to account for 76% of total revenue. In a world gone digital, that is great news indeed. Can this company survive in a digital-dependant world has been answered? Shares of Williams-Sonoma stock yield about 2.2%.
About Williams-Sonoma
Williams-Sonoma, Inc operates as an omni-channel specialty retailer of various products for home. It offers cooking, dining, and entertaining products, such as cookware, tools, electrics, cutlery, tabletop and bar, outdoor, furniture, and a library of cookbooks under the Williams Sonoma Home brand, as well as home furnishings and decorative accessories under the Williams Sonoma lifestyle brand; and furniture, bedding, lighting, rugs, table essentials, and decorative accessories under the Pottery Barn brand.
Read More - Current Price
- $183.68
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 11 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $158.78 (13.6% Downside)
#5 - BJ's Wholesale Club (NYSE:BJ)
BJ’s Wholesale Club (NYSE:BJ)
BJ’s Wholesale Club is a small regional warehouse club operating in 17 eastern states. The pandemic was a game-changing event for them, too, in that it not only boost sales but elevated the company to a household name. There’s no dividend with this stock, but there is a growth outlook, and what a value! Trading only 17X its earnings, it’s a value compared to Walmart (26X earnings ) and a DEEP value compared to Costco (46X earnings).
The 2nd quarter earnings report was stellar. BJ’s Wholesale club reported 17.9% YOY revenue growth to beat consensus by 500 basis points. Comp sales ex-gas increased by 24%, showing the true strength of the core business. The company did not offer any formal guidance but had this to say in its statement.
"Our business has been transformed and strengthened in the last six months by every measure. We are extremely well-positioned to continue to win as we invest in digital capabilities, membership, assortment, marketing, and geographic expansion to accelerate this transformation further,"
About BJ's Wholesale Club
BJ's Wholesale Club Holdings, Inc, together with its subsidiaries, operates warehouse clubs on the eastern half of the United States. It provides groceries, general merchandise, gasoline and other ancillary services, coupon books, and promotions. The company sells its products through the websites BJs.com, BerkleyJensen.com, and Wellsleyfarms.com, as well as the mobile app.
Read More - Current Price
- $93.77
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $94.00 (0.2% Upside)
#6 - Chewy.Com (NYSE:CHWY)
Chewy.com is perhaps the most unique story in the retail world today. Situated at the convergence of multiple trends, the company is a pure-play on eCommerce and petcare. eCommerce you know about. It was growing double-digits before the pandemic and now looking at triple-digit YOY gains.
If you didn’t know, pet care was growing at a mid to high-single-digit pace before the pandemic, and that trend has accelerated too. People love their pets. Americans are owning more pets than ever before and spending more per pet as they become entrenched in our families.
Chewy.com hasn’t reported for the fiscal 2nd quarter yet but don’t be surprised when it does. The company reported near 50% YOY growth in the first quarter, ended May 3rd, and the data since suggests growth has only accelerated. The data from Bank Of America has eCommerce sales tracking roughly 75% above the previous year across all categories with total penetration near 20%.
About Chewy
Chewy, Inc, together with its subsidiaries, engages in the pure play e-commerce business in the United States. It provides pet food and treats, pet supplies and pet medications, and other pet-health products, as well as pet services for dogs, cats, fish, birds, small pets, horses, and reptiles through its retail websites and mobile applications.
Read More - Current Price
- $33.72
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $34.60 (2.6% Upside)
#7 - Big Lots (NYSE:BIG)
Big Lots has been working hard the last few years on a project it calls Operation North Star. The project amounts to an end-to-end shift in how the company does business, including store updates, streamlining operations, and a focus on eCommerce. Those efforts began to pay off at the beginning of 2020, and the pandemic did little to hinder them. Yes, store traffic was hurt when the shut-downs took place, but eCommerce helped carry the company through, and the reopening rebound has been stunning. Revenue in the 2nd quarter grew 31.2% on YOY basis despite widespread shutdowns.
Big Lots is another great dividend payer and one that could begin raising its distribution very soon. The stock yields about 2.5%, with share prices near $50, and the payout ratio is meager. At only 18% of earnings, the company has plenty of cash to give back. And that doesn’t take into account the company’s massive cash pile.
About Big Lots
Big Lots, Inc, through its subsidiaries, operates as a home discount retailer in the United States. The company offers products under various merchandising categories, such as furniture category that includes upholstery, mattresses, home décor, case goods, and ready-to-assemble departments; seasonal category, which comprises patio furniture, gazebos, Christmas trim, lawn and garden, and other holiday departments; soft home category consists of apparel, hosiery, jewelry; frames, fashion and utility bedding, bath, window, decorative textiles, and area rugs departments; and food category that includes beverages and grocery, specialty foods, and candy and snacks departments.
Read More - Current Price
- $0.00
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $1.25
The Conclusion: The Pandemic Killed Some Retailers, But Not Retail
The retail landscape certainly changed. Businesses with too-heavy reliance on brick&mortar, too-little eCommerce presence, or not enough cash are in trouble. There have already been dozens of bankruptcies, and there will likely be more, but that doesn’t mean all retailers are in trouble.
Many U.S. retailers were in the perfect position for a windfall of cash blown loose by the pandemic. If not, there were at least able to weather the storm and come back fighting.
The takeaway for investors is that retail trends sparked by the pandemic have not yet run their course. We’re only in the mid-game when it comes to the economic rebound, and we’re coming up on the holiday season. Spending is only going to increase. And that’s not counting any more stimulus.
If you are interested in gaining exposure to the Retail Sector, you will do well with any of our list's stocks. Now it’s time to pick the best one for your portfolio.
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