5 US retail stocks to watch as holiday season nears

Highlights:

• The gross profit of Dollar Tree Inc. (NASDAQ: DLTR) was up over 14 per cent YoY in Q2 FY22.
• TJX Companies, Inc. (NYSE: TJX) announced a quarterly dividend of US$ 0.295 per share, payable on December 1, 2022.
• The diluted EPS of Academy Sports and Outdoors, Inc. (NASDAQ: ASO) rose over 11 per cent YoY in Q2 FY22.

The overall US market, along with other global financial markets, has faced unprecedented challenges in recent months, as reflected by the slump in the performances of stocks. The market has been caught up by several macroeconomic factors denting the spirit of investors, along with the stubbornly high inflation and the central bank's aggressive efforts to bring it down.

The retail sector was among the worst-hit segments of the market since the outbreak of COVID-19, as consumers were forced to stay at home, and a decline in consumer spending also weighed on the sector.

Some of the important names from the sector include Dollar Tree Inc. (NASDAQ: DLTR), TJX Companies, Inc. (NYSE: TJX), Tractor Supply Company (NASDAQ: TSCO), Academy Sports and Outdoors, Inc. (NASDAQ: ASO), and Dillard's, Inc. (NYSE: DDS).

However, despite the harsh moves by the Federal Reserve to bring down the inflation under their target range, the inflation is showing no signs of abating. But entering the holiday quarter, some investors might keep a close track of the sector’s performance.

The performance of the retail sector would also shed some light on consumer sentiments. So, let's take a quick look at these retail firms, their recent stock movements, and financial highlights with Kalkine Media®:

Dollar Tree Inc. (NASDAQ: DLTR)

The leading discount variety store chain operator, Dollar Tree holds a market cap of US$ 35.40 billion. The company, with a P/E ratio of 22.78, offers a range of products and services across the US and Canada.

The stock of the discount store operator jumped over 12 per cent through the ongoing year, and about 42 per cent year-over-year (YoY). In the running quarter through November 2, it soared over 16 per cent.

According to its Q2 FY22 earnings release, Dollar Tree's net sales rose 6.7 per cent on a reported basis to US$ 6.77 billion, while its net income soared 27.4 per cent YoY to US$ 359.9 million.

The company's gross profit was up 14.2 per cent YoY to US$ 2.12 billion in Q2 FY22. The company said that it had repurchased 1,664,717 shares at an average price of US$ 141.67 for US$ 235.8 million in the reported quarter.

TJX Companies, Inc. (NYSE: TJX)

The off-price department store company, TJX Companies holds a dividend yield of 1.64 per cent. The off-price corporation is one of the major apparel and home fashions retailers in the US.

The company's stock price, which also has its operations on many international markets, fell over five per cent YTD while adding about seven per cent YoY. In the ongoing quarter through November 2, TJX stock was up over 15 per cent.

On September 19, the Framingham, Massachusetts-based firm declared a quarterly dividend of US$ 0.295 apiece on its common stock, which would be payable on December 1 this year.

In Q2 FY23, TJX Companies' net sales fell two per cent YoY to US$ 11.8 billion, and its diluted EPS was US$ 0.69 per share, versus US$ 0.64 apiece in Q2 FY22. Notably, for the first half of the year, the off-price retailer's net sales rose five per cent YoY to US$ 23.2 billion.

Tractor Supply Company (NASDAQ: TSCO)

Another major retail chain company, Tractor Supply had a dividend yield of 1.67 per cent. The stock of the retail store chain operator, which sells home improvements, farm supplies, and other related products, declined about seven per cent YTD.

On an annual basis, the TSCO stock was up three per cent, and in the ongoing quarter through November 2, it added about 18 per cent.

Tractor Supply's net sales rose 8.4 per cent YoY to US$ 3.27 billion in Q3 FY22, and its diluted EPS ticked up 7.7 per cent YoY to US$ 2.10 apiece.

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Academy Sports and Outdoors, Inc. (NASDAQ: ASO)

The sporting goods retail store operator, Academy Sports, and Outdoors had a dividend yield of 0.68 per cent. The firm's stock, which sells sporting goods, hunting, fishing, and camping-related products, fell flat in 2022.

In the last 12 months, the sporting retailer's stock added nearly four per cent, while soaring around five per cent in the quarter.

In Q2 FY22, Academy Sports and Outdoors' net sales fell 5.8 per cent YoY to US$ 1.69 billion, while its diluted EPS rose 11.6 per cent YoY to US$ 2.22 apiece. The growth in the diluted EPS was based on a share count of 84.9 million shares in Q2 FY22, as compared to 95.9 million in the year-ago quarter.

Dillard's, Inc. (NYSE: DDS)

The upscale department store chain operator, Dillard's Inc had a dividend yield of 0.24 per cent. The company's stock, which provides several items like apparel, shoes, cosmetics, etc., rose 35 per cent YTD.

On a YoY basis, the DDS stock added over 45 per cent and in the ongoing quarter through November 2, it surged over 21 per cent.

Dillard's net sales were US$ 1.58 billion for the 13 weeks that ended on July 30 this year, against US$ 1.57 billion in the year-ago period. In Q2 FY22, its net income was US$ 163.4 million, representing 10.3 per cent of the net sales, versus US$ 185.7 million in Q2 FY21.

Bottom line:

The retail sector has not only been affected by the decade-high inflation, but also by hit supply-chain woes, rising inventories, and rising interest rates. The investors were hopeful that the sector may grow at a significant pace this year, with the economy coming out from the pandemic hit.

But the picture seemed to have altered, especially after the Russia-Ukraine war showed its impact on the global financial markets. The war has bumped up the commodities, food, and other related products prices, further contributing to red-hot inflation.

However, some investors are still hopeful with the holiday season on focus. The traders anticipate that Americans would be spending more this year on their holiday shopping, after two years of pandemic-led restrictions.

According to Commerce Department's report, the overall retail sales in September were resilient to the rate hikes, while remaining unchanged in the period on a monthly basis. However, annually it notched gains of 8.2 per cent in September.

The S&P 500 retail industry fell around 34 per cent YoY while slipping over 30 per cent in 2022. So, investors should keep close track of other factors, like the central bank's effort in curbing the demands in the wake of soaring costs, etc., which might change the scenario in the coming days.

The downbeat reading showed that the sector remained highly volatile and that investors should consider all the risks with diligence before putting their bets.