4 High-Quality Retail Stocks to Buy During These Uncertain Times

The retail industry is battling labor shortages, rising inflation, and supply chain disruptions. And surging COVID-19 omicron cases have heightened uncertainties for the industry, threatening sales and profits. “Even with the experience of the past two years, there is no model that can predict how the economy responds to a pandemic,” said National Retail Federation (NRF) Chief Economist Jack Kleinheinz. 

Over the past two years, the industry has demonstrated resilience with technology investments to strengthen its online presence and address changing consumer preferences. According to Gartner’s survey, 95% of retail CEOs say they plan to increase their investment in digital capability. Retailers are seeking to boost their omnichannel offerings by building a sustainable supply chain and enhancing consumer experience through ‘phygital’ shopping.

So, the retail industry is expected to achieve solid growth in the coming years, with 72% of U.S. retail sales expected to occur in brick-and-mortar stores in 2024. However, given the current uncertainties, we think it could be wise to invest in high-quality retail stocks, Dillard’s, Inc. (DDS), The Children’s Place, Inc. (PLCE), Shoe Carnival, Inc. (SCVL), and Destination XL Group, Inc. (DXLG).

Dillard’s, Inc. (DDS)

Little Rock, Ark.-based DDS operates retail department stores that offer merchandise, including fashion apparel for women, men, and children; accessories; cosmetics; home furnishings; and other consumer goods. 

In November 2021, DDS declared a special $0.15 per share dividend on the company’s Class A and Class B common stock, which was payable on Dec. 15, 2021, to shareholders of record as of Nov. 9, 2021. The company also declared a dividend of $0.20 per share on Class A and Class B Common Stock, which was payable on Jan. 31, 2022, to shareholders of record as of Dec. 31, 2021.

DDS’s net sales increased 44.5% year-over-year to $1.48 billion in its fiscal third quarter, ended October 30. Its net income grew 518.5% from its year-ago value to $197.30 million. Its EPS increased 586% from its year-ago value to $9.81. And its cash and cash equivalents improved 914.2% year-over-year to $619.70 million for the 10 months ended October 30. 

The Street expects the company’s revenue to increase 26.7% year-over-year to $2.05 billion in its fiscal fourth quarter, ended January 2022. The $10.45 consensus EPS estimate indicates a 274.4% rise year-over-year. Also, DDS beat the Street’s EPS estimates in each of the trailing four quarters.

DDS shares have gained 233.2% in price over the past year and 5.7% year-to-date to close its last trading session at $258.97.

DDS’ POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

DDS is rated an A in Growth, Value, and Quality. Within the A-rated Fashion & Luxury industry, it is ranked #13 of 65 stocks. 

In addition to the POWR Ratings grades highlighted, one can see the DDS’ Momentum, Stability, and Sentiment ratings here. 

The Children’s Place, Inc. (PLCE)

PLCE operates as a children’s specialty apparel retailer. The Secaucus, N.J.-based company operates through two segments: The Children’s Place U.S. and The Children’s Place International. It sells apparel, footwear, accessories, and other items for children.

Last November, PLCE announced an additional share repurchase for up to $250 million of the company’s outstanding common stock, increasing existing shareholders’ returns.

Also in November, PLCE announced the refinancing of its revolving credit facility and term loan with a new lending group led by an affiliate of Wells Fargo. It consists of a $350 million revolving and a $50 million term loan with five-year maturities, lower interest rates, reduced reporting requirements, and increased flexibility under the covenants. Robert Helm, Chief Financial Officer, said, “Our strong results provided us with the opportunity to complete this refinancing on attractive terms successfully and to accomplish several other important objectives, including enhancing our strong liquidity position and solidifying our balance sheet with the reduction in the amount of the term loan.”

PLCE’s net sales increased 31.2% year-over-year to $558.23 million in its fiscal third quarter, ended October 30. Its adjusted operating income grew 271.1% from its year-ago value to $116.51 million, while its adjusted net income improved 310% year-over-year to $80.81 million. Its adjusted EPS increased 302.2% from its year-ago value to $5.43.

The $535.65 million consensus revenue estimate for the fiscal fourth quarter, ended January 2022 indicates a 13.3% year-over-year increase. The $2.81 consensus EPS estimate reflects a 178.6% rise year-over-year. PLCE has also topped the consensus EPS estimates in three of the trailing four quarters. 

PLCE shares gained 4.6% intraday to close the last trading session at $69.20.

PLCE has an overall B rating, which translates to Buy in our proprietary rating system. The stock is rated an A in Growth and Quality and a B in Value and Momentum. In the Fashion & Luxury industry, it is ranked #12. To get PLCE’s Stability and Sentiment ratings, click here.

Shoe Carnival, Inc. (SCVL)

SCVL in Evansville, Ind., together with its subsidiaries, operates as a family footwear retailer. It offers various dress, casual, and athletic footwear products for men, women, and children; and accessories, such as socks, belts, shoe care items, handbags, hats, sports bags, backpacks, water bottles, and wallets.

Last December, SCVL announced the acquisition of all the assets of privately held, family-owned Shoe Station, Inc., which operates stores in five Southeastern states. This acquisition will enable SCVL to serve a broader customer base across urban and suburban demographics. SCVL expects to surpass 400 stores by the end of 2022.

Also last December, SCVL announced a partnership with DoorDash, Inc. (DASH) to provide the customers ‘same-day delivery’ amid the holiday rush, the first-of-its-kind in family footwear. “Same-day delivery, in addition to our Buy Online, Pick up in Store offering are two ways our customers can get their shoes without worrying about shipping delays,” said Mark Worden, Shoe Carnival’s President, and Chief Executive Officer. 

SCVL’s net sales increased 29.8% year-over-year to $356.34 million in its fiscal third quarter, ended October 30. Its gross profit grew 64.1% from its year-ago value to $144.06 million, while its net income improved 219.1% year-over-year to $46.84 million. Its EPS increased 221.6% from its year-ago value to $1.64.

The $1.31 billion consensus revenue estimate for its fiscal year ended January 2022 indicates a 34.1% increase year-over-year. Analysts expect the EPS to come in at $5.18, reflecting an 824.1% rise year-over-year in the same period. Moreover, SCVL beat the Street’s EPS estimates in each of the trailing four quarters.

The stock gained 24.4% in price over the past year to close its last trading session at $31.59.

It is no surprise SCVL has an overall A rating, which translates to Strong Buy in our proprietary rating system. SCVL is rated an A in Quality and a B in Growth, Value, and Momentum. It is ranked #2 in the Fashion & Luxury industry. Click here to see the SCVL’s ratings for Stability and Sentiment.

Destination XL Group, Inc. (DXLG)

DXLG, together with its subsidiaries, operates as a specialty retailer of big and tall men’s clothing and shoes. Its stores offer sportswear and dress wear; accessories; fashion-neutral items, including jeans, casual slacks, T-shirts, polo shirts, dress shirts, suit separates; and casual clothing. DXLG is headquartered in Canton, Mass.

Last month, DXLG reported its holiday sales results. The company’s total sales came in at $106.60 million for the 9-week holiday sales period ended Jan. 2, 2022, compared to its $78.40 million year-ago value. As compared to the pre-pandemic period in its fiscal 2019, comparable sales in its omnichannel retail business for the same period increased 11.4%. “For the critical 9-week holiday shopping season, we grew sales both in-store and through our direct channels with very few promotions which contributed to higher margins based on lower markdowns,” said Harvey Kanter, President, and Chief Executive Officer.

DXLG’s sales increased 42.6% year-over-year to $121.49 million in its fiscal third quarter, ended October 30. Its operating income stood at $15.94 million, up 369.5% from its year-ago value, while its net income improved 294.5% year-over-year to $13.66 million. Its adjusted EBITDA increased 1,017.6% from its year-ago value to $19 million.

Analysts expect the company’s revenue to increase 57.9% year-over-year to $503.47 million for its fiscal period ended January 2022. The company’s EPS is expected to grow 15% per annum over the next five years.

Over the past year, the stock has gained 584.1% in price to close its last trading session at $4.72.

DXLG’s POWR Ratings reflect its solid fundamentals. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. DXLG is rated an A in Growth, Sentiment, and Quality and a B in Value and Momentum. In the Specialty Retailers industry, it is ranked #1 f the 46 stocks. Get DXLG’s Stability ratings here. 

Note that DXLG is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

DDS shares were trading at $262.96 per share on Tuesday afternoon, up $3.99 (+1.54%). Year-to-date, DDS has gained 7.32%, versus a -5.06% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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