The COVID-19 pandemic was a major setback for the retail industry, forcing many retailers to close stores temporarily. Still, retail sales rebounded in 2021, barring December, when retail sales fell 1.9% versus an expected 0.1% decline. December's retail sales decline can be attributed to a rise in consumer goods prices, with the consumer price index climbing 0.5%. The surge in omicron cases around the country was also responsible for the waning consumer spending. However, a Labor Department report, released on January 14, 2022, showed that import prices declined 0.2% in December, indicating that inflation may be slowing.
The pandemic-related headwinds forced retailers to become more agile and consumer-centric, while eliminating legacy systems and strategies that they found were hampering growth. According to research by Forrester, 72% of all U.S. retail sales will from brick-and-mortar stores in 2024.
Given this backdrop, we think it could be wise to add fundamentally strong retail stocks Macy's, Inc. (M), Dillard's, Inc. (DDS), and Shoe Carnival, Inc. (SCVL). These stocks are currently trading at discounts to their peers.
Macy's, Inc. (M)
Cincinnati, Ohio-based M is an omnichannel retail company that operates its stores, websites, and mobile applications under three brands: Macy’s, Bloomingdale’s, and Bluemercury. It sells a range of merchandise for men, women, and kids, including apparel and accessories, cosmetics, home furnishings, and other consumer goods.
On Nov. 18, 2021, M announced plans to launch a curated digital marketplace to build on its existing authority as a digitally-led omnichannel retailer. The launch is expected to expand the company’s assortment in existing categories and brands significantly while introducing a range of new categories. Matt Baer, the chief digital and customer officer at M, said, “The market platform will further accelerate our Polaris strategy and unlock new opportunities for sustainable and profitable growth.”
M’s net sales for its fiscal third quarter, ended Oct. 30, 2021, increased 36.3% year-over-year to $5.44 billion. The company’s operating income came in at $523 million compared to a $127 million loss in the prior-year quarter. Its adjusted EBITDA increased 381.1% year-over-year to $765 million.
In terms of forward EV/S and P/S, M’s respective 0.57x and 0.31x are lower than the 1.31x and 1.13x industry averages. Also, its 5.20x forward non-GAAP P/E is 61.8% lower than the 13.62x industry average. Analysts expect M’s EPS and revenues for fiscal 2022 to increase 319.9% and 39.6%, respectively, year-over-year to $4.86 and $24.22 billion. It has surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 93.1% to close the last trading session at $23.83.
M’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and Value and a B grade for Quality. In the A-rated Fashion & Luxury industry, M is ranked #20 of 64 stocks. Click here to see the additional ratings of M for Momentum, Stability, and Sentiment.
Dillard's, Inc. (DDS)
DDS is a retailer of fashion apparel, cosmetics, and home furnishings. It operates approximately 280 Dillard’s stores, including 31 clearance centers and an internet store offering a selection of merchandise, including fashion apparel for men, women, and kids, accessories, cosmetics, home furnishings, and other consumer goods. DDS is headquartered in Little Rock, Ark.
For the fiscal third quarter, ended October 30, 2021, DDS’ net sales increased 44.5% year-over-year to $1.48 billion. Its comparable retail sales increased 48% for the quarter. The company’s net income increased 518.4% year-over-year to $197.30 million. Also, its EPS increased 586% year-over-year to $9.81, surpassing the consensus EPS estimate by 77.7%.
In terms of forward EV/S and P/S, DDS’ 0.71x and 0.72x, respectively, are lower than the 1.31x and 1.13x industry averages. Furthermore, its 6.06x forward Price/Cash Flow is 50.1% lower than the 12.14x industry average. Analysts expect DDS’s EPS and revenue for fiscal 2022 to increase 1,489.6% and 47%, respectively, year-over-year to $38.63 and $6.52 billion. It surpassed the Street’s EPS estimates for each of the trailing four quarters. Over the past year, the stock gained 244.5% in price to close the last trading session at $229.32.
DDS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
DDS also has an A grade for Growth, Value, and Quality. It is ranked #14 in the Fashion & Luxury industry. To see the other ratings of DDS for Momentum, Stability, and Sentiment, click here.
Shoe Carnival, Inc. (SCVL)
SCVL, which is headquartered in Evansville, Ind., is a family footwear retailer. The company offers customers a broad assortment of dress, casual and athletic footwear, and accessories for men, women, and children. It caters to its customers through its physical stores and e-commerce website.
On Dec. 3, 2021, SCVL announced the acquisition of Shoe Station, Inc., a family-owned retailer of footwear and accessories. The acquisition will enable SCVL to enter five Southeastern states. The addition of the brand and locations should help SCVL create a portfolio that will cater to a wider customer base across urban and suburban demographics.
SCVL’s net sales increased 29.7% year-over-year to $356.33 million for its fiscal third quarter, ended Oct. 30, 2021. The company’s net income increased 219% year-over-year to $46.83 million. Also, its EPS came in at $1.64, representing a 221.5% increase year-over-year.
In terms of forward EV/S and P/S, SCVL’s respective 0.80x and 0.75x are lower than the 1.31x and 1.13x industry averages. Also, its 6.78x forward non-GAAP P/E is 50.1% lower than the 13.62x industry average. Analysts expect SCVL’s EPS and revenue for its fiscal 2022 to increase 819.6% and 33.1%, respectively, year-over-year to $5.15 and $1.30 billion. The stock has gained 54.7% in price over the past year to close the last trading session at $32.52.
SCVL’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and a B grade for Growth, Value, and Momentum. Again, it is ranked #2 in the Fashion & Luxury industry. Click here to see the other ratings of SCVL for Stability and Sentiment.
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M shares were trading at $23.52 per share on Friday morning, down $0.31 (-1.30%). Year-to-date, M has declined -10.16%, versus a -5.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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