The middle of August signifies it is time to head back to school to start another year. Unfortunately for parents, this is just another reason to open up the wallet. Whether it is for gadgets, supplies, or clothes, parents will be on the lookout for retailers that offer the best deals and prices so kids will be prepared when that first bell rings.
For retailers, this is a highly competitive time of the year and the next month could make or break the quarter. Many retail companies will be ready and willing to offer parents all kinds of different incentives and discounts to get the parents inside the door or on the website.
According to the National Retail Federation (NRF), the average family is expected to spend more freely on school supplies this year. In fact, they estimate the spending for K-12 and college is expected to reach $75.8 billion, up 11% from $68 billion.
$75 billion is a lot of revenue to go around, but where are consumers actually going to spend that money? Looking at the figure below, we see that 60.5% plan to shop at discount stores, 59% at department stores, 51% at clothing stores, 46% online, and 38.5% at offices supply stores.
Now let’s take a look at companies that are drawing in consumers and benefiting from their back to school needs and wants. Below I list five stocks that will profit from an increase in back to school sales. These stocks are either Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy).
Burlington Stores (BURL - Snapshot Report) is a Zacks Rank #1 (Strong Buy) that operates as an off-price apparel and home product retailer. The company offers fashion-focused merchandise, including women’s ready-to-wear apparel, menswear, youth apparel, baby products, footwear, accessories, home décor and gifts, and coats. The company was founded in 1972, employs 37,500 people and is headquartered in Burlington New Jersey.
Burlington is valued at $5.5 Billion and has a forward PE of 26. The stock sports a Zacks Style Score of “B” in Growth and has an expected EPS growth rate of 18%.
In late May the company had an 18.75% EPS beat and since raised Q2 guidance. The stock has had an impressive run of over 25% since the last report and announces again on August 25th. Expect some back to school sales to be reflected in the revenue numbers and a possible move higher on a solid beat. The company has never failed to surprise to the upside on EPS since its IPO in 2013.
Wal-Mart (WMT - Analyst Report) is a Zacks Rank #2 (Buy) that is a popular low price international retailer. The Arkansas based company engages in the operation of mass merchandising stores, which serve their customers primarily through the operation of three segments: Wal-Mart Stores, the SAM'S Club and International.
Wal-Mart has a market cap of $230 Billion and a forward PE of 17. The stock sports Zacks Style Scores of “A” in Value, “B” in Growth and “C” in Momentum and pays a 2.71% dividend.
Last quarter Wal-Mart surprised investors with a large EPS beat. The company saw $0.98 verse the $0.88 expected along with a beat on revenue. In addition they guided Q2 higher, seeing $0.95-1.08 verse the $0.99 expected.
Investors responded positively as the stock jumped over 10% in a day and is up 15% since EPS. Wal-Mart reports on August 18th, so look for some earnings momentum from last quarter. Looking at the figure below you can see estimates ticking higher for both fiscal year 2016 and 2017. This early report should give investors a preview into how consumers are responding to back to school sales.
Dollar Tree (DLTR - Analyst Report) is a Zacks Rank #2 (Buy) that is an operator of discount variety stores offering merchandise at a fixed price point of $1.00 or less. The company offers a wide range of quality everyday general merchandise in many categories, including housewares, seasonal goods, toys, gifts, party goods, books, personal accessories, and other consumer items. Dollar Tree was founded in 1986, employs over 55,000 and is based in Chesapeake, Virginia.
The company is valued at $23 Billion and has a forward PE of 25. The stock sports Zacks Style Scores of “B” in both Value and Momentum, and “A” in Growth.
On May 26th Dollar Tree reported Q1 earnings with an 11.25% surprise to the upside. The stock shot higher after earnings and now looks to break the psychologically important $100 level. They next report earnings on September 6th where the company will look for back to school consumers to drive another EPS beat. Not only is the company a play for students, but it is also a popular stop for teachers that stock their classrooms with cheap supplies.
DSW (DSW - Snapshot Report) is a Zacks Rank #2 (Buy) that is a specialty branded footwear retailer operating DSW stores and also supplies, under supply arrangements, to related retailers and to other non-related retailers in the United States. The company was founded in 1917, has almost 12,000 employees and is based in Columbus, Ohio.
DSW has a market cap of $2 Billion and a forward PE of 17. The stock sports Zacks Style Scores of “A” in Value and “B” in Growth. The company also pays a 3.35% dividend.
In late May the company reported a downside EPS surprise of -13.04%. Shares took a hit, but have since recovered. The company will report August 30th, which will give investors enough time to see if the back to school shoes are jumping off the shelves. If the company sees an EPS beat, expect a significant rally as a lot of negativity has been priced in over the last three years.
Best Buy (BBY - Analyst Report) is a Zacks Rank #2 (Buy) that operates in a single business segment, selling personal computers and other home office products, consumer electronics, entertainment software, major appliances and related accessories principally through its retail stores. The Minnesota company employs 125,000 and was founded in 1966.
Best Buy has a market cap of $11 Billion and a forward PE of 12. The stock sports Style Scores of “A” in Value and “B” in Growth. It also pays out a dividend of 3.21%.
The company reports earnings on August 23rd where it will look for its 14th straight beat. They will count on store traffic this month from the back to school college crowd, as students look to buy new computers, printers, TVs and tablets.
Back to School will make and break the quarter for some retailers. Make sure to invest in the companies that are poised to excel form the higher than expected sales this August. A quarter that sees higher sales will typically result in a healthy bottom line and a higher stock price.
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