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Back-to-School Season to Boost Retail Sales: 5 Solid Picks

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The retail sector is finally getting back on its feet, thanks to the rapid pace of vaccination that has raised the confidence of millions of Americans. Alongside, restrictions too are being eased, adding to people’s confidence and helping the retail sector.

As the economy further reopens, more people will be stepping out. Also, this back-to-school season is likely to prove better for the retail sector after having almost no business last year when education institutes had to be shuttered due to the pandemic. According to Mastercard Inc SpendingPulse data, back-to-school sales are projected to boost retail sales in a major way this season.

Back-to-School Sales to Grow

According to Mastercard Inc SpendingPulse, retail sales are expected to grow 5.5% year over year, excluding automotive and gas, between Jul 15 and Sep 6, which is typically the back-to-school period. Further, retail sales are projected to grow 6.7% from 2019.

Much like the holiday season, the back-to-school season has been a crucial sales period for retailers. Last year turned out to be a disaster as millions of students studied online.

However, this year, with the broader reopening, things seem to be back on track. Physical classes are gradually commencing, which will see students going back to schools, thus raising hopes of retailers. Also, physical stores are gradually reopening and retailers are hopeful about back-to-school sales returning to pre-pandemic levels.

Moreover, Mastercard also expects apparel sales to jump 78.2% from 2020 and 11.3% from 2019 during this back-to-school season. Besides, it expects e-commerce sales to grow 7% from 2020 and 53% from 2019during the same period. Sales for electronics are expected to soar 13% year over year and 9.6% from 2019.

Retail Sector on Track for Recovery

The retail sector is on track for a faster-than-expected recovery after suffering for months owing to the pandemic. Last week, the National Retail Federation (NRF) raised its 2021 forecast for retail sales growth.

The NRF now expects retail sales to grow between 10.5% and 13.5% to another $4.4 trillion to $4.56 trillion in 2021. It had projected growth of 6.5% to 8.2% for 2021 back in February. However, with stores reopening and attracting healthier footfall, following the massive vaccination drive, expectations of a faster economic revival are high.

The revised projections are also a lot higher than $4.02 trillion retail sales recorded in 2020. Of the total sales, $902 billion had accounted for online and non-store sales. Notably, the NRF expects retail sales to return to pre-pandemic levels in the ongoing quarter.

Our Choices

Given the upbeat sentiment and growing consumer confidence, it would be prudent to invest in these five retail stocks.

Target Corporation (TGT - Free Report) has evolved from just being a pure brick & mortar retailer to an omnichannel entity. The company has been investing in technologies, improving websites and mobile apps, and modernizing the supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players.

The company’s expected earnings growth rate for the current year is 25.6%. The Zacks Consensus Estimate for current-year earnings has improved 37.4% over the past 60 days. Target carries a Zacks Rank #1.

Ulta Beauty Inc. (ULTA - Free Report) offers a wide range of products, including cosmetics, fragrance, skincare, hair care, bath and body products, and salon styling tools in stores.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 25.2% over the past 60 days. Ulta Beauty sports a Zacks Rank #1.

Dillards, Inc. (DDS - Free Report) is a large departmental store chain featuring fashion apparel and home furnishings. The company also sells its merchandize through the Internet at www.dillards.com. The company’s primary product categories comprise women’s and children’s apparel, shoes, accessories and lingerie, men’s clothing and accessories, cosmetics, home, and children’s clothing.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. Dillards has a Zacks Rank #1.

Burlington Stores, Inc. (BURL - Free Report) offers products such as ladies sportswear, menswear, youth apparel, baby furniture, accessories, home décor and gifts, and coats. 

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 23.1% over the past 60 days. Burlington Stores carries a Zacks Rank #1.

Walmart Inc. (WMT - Free Report) has evolved from just being a traditional brick-and-mortar retailer into an omnichannel player. In this regard, acquisitions of Bonobos, Moosejaw and Parcel; partnership with Shopify and Goldman Sachs; delivery programs like Walmart + and Express Delivery; and investment in online e-commerce platform Flipkart are noteworthy. 

The company’s expected earnings growth rate for the current year is 7.9%. The Zacks Consensus Estimate for current-year earnings has improved 9% over the past 60 days. Walmart has a Zacks Rank #2 (Buy).

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