After four consecutive three-quarter-point hikes, the Federal Reserve eased up on its most aggressive economic tightening campaign by raising interest rates by 50 basis points on Wednesday.
However, despite major macroeconomic headwinds, the U.S. economy grew at a 2.6% annual rate from July through September, snapping out of two straight quarters of contraction. Moreover, as per the National Retail Federation, holiday retail sales are expected to grow by 6% to 8% this year as consumers continue to show resilience.
Furthermore, Consumer Prices rose less than expected in November, the latest sign that the runaway inflation that has been gripping the economy is beginning to loosen up. In addition, last month’s better-than-expected job growth and strong wage growth should assist consumer spending.
Given this backdrop, fundamentally strong retail stocks Walmart Inc. (WMT), The Kroger Co. (KR), and Tapestry, Inc. (TPR) seem poised to soar this holiday season.
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club.
On October 31, WMT announced a strategic partnership with Popable, a pop-up shop marketplace platform that allows small businesses to rent retail space in WMT stores across the country for short-term leasing.
The partnership is believed to help small business owners thrive, keeping excess inventory moving and creating greater built-in foot traffic. WMT will benefit from the utilization of its store space.
WMT’s four-year average dividend yield is 1.70%, and its forward annual dividend of $2.24 per share translates to a 1.53% yield. Over the last three years, WMT’s dividend payouts have grown at a 1.9% CAGR. The company has been consecutively raising its dividend for the past 49 years.
For the fiscal third quarter ended October 31, 2022, WMT’s total revenues increased 8.7% year-over-year to $152.81 billion. Its adjusted operating income increased 3.9% year-over-year to $6.02 billion. In addition, its adjusted EPS came in at $1.50, representing a 3.4% increase from the year-ago quarter.
WMT’s revenue for the fiscal first quarter ending April 2023 is expected to increase 3.5% year-over-year to $145.17 billion. Its EPS for the same quarter is expected to grow 8.6% year-over-year to $1.41. The company has surpassed its consensus EPS estimates in three of the trailing four quarters.
The stock has gained 6% over the past month and 22.8% over the past six months to close the last trading session at $146.67.
WMT’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Stability and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #9 out of 39 stocks.
Click here to see the additional POWR Ratings of WMT for Growth, Value, and Momentum.
The Kroger Co. (KR)
KR operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses.
On December 12, KR announced the launch of floral and sushi delivery on DoorDash Inc. Cl A (DASH) marketplace from banner stores across the country. The new delivery option through DoorDash marks the latest expansion of the grocer’s seamless experience, providing customers with even more opportunities to get fresh, affordable products.
On December 7, KR announced the opening of the 1,000th Murray’s Cheese shop in Kroger banner stores, bringing Murray’s shops to more than 30 states across America. The new shop should help drive up the company's revenue ahead of the holiday season.
On September 15, KR declared a quarterly dividend of 26 cents per share to be paid to shareholders on December 1, 2022. The company has 16 years of consecutive dividend growth. Its annual dividend of $1.04 yields 2.32% on prevailing prices. The company’s dividend payouts have increased at a 16.1% CAGR over the past three years and a 13.9% CAGR over the past five years.
KR’s sales increased 7.3% year-over-year to $34.20 billion in the fiscal third quarter ending November 5, 2022. Its adjusted EBITDA grew 10.9% from the year-ago value to $7.78 billion, while its adjusted EPS improved 12.8% year-over-year to $0.88.
Street expects KR’s revenue for the fiscal year ending January 2023 to come in at $148.33 billion, indicating an increase of 7.6% year-over-year. The company’s EPS is expected to grow 12.2% year-over-year to $4.13 in the same year. Moreover, the 3company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock declined 1.5% intraday, closing the last trading session at $44.76.
KR’s impressive prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It has a B grade in Value and Quality. KR is ranked #10 out of the 39 stocks in the A-rated Grocery/Big Box Retailers industry.
In addition to the POWR Rating grades just highlighted, you can see KR ratings for Growth, Sentiment, Momentum, and Stability here.
Tapestry, Inc. (TPR)
TPR operates as a luxury accessory and branded lifestyle products provider internationally. The New York City-based company operates through the Coach; Kate Spade; and Stuart Weitzman segments. Its offerings include women’s accessories, novelty accessories, and keys and charms.
On November 17, TPR declared a quarterly cash dividend of $0.30 per common share, payable on December 27, 2022. It pays an annual dividend of $1.20 per share, translating to a 3.15% yield. It has a 4-year average yield of 3.44%.
In its first fiscal quarter ended October 1, 2022, TPR’s net sales increased 1.7% year-over-year to $1.51 billion. Its gross profit totaled $1.05 billion, while its gross margin was 70.0%. Similarly, with an operating margin of 16.9%, the company reported its Operating income to be $254 million. Moreover, its net income was $195 million, with earnings per share of $0.79.
TPR’s EPS estimate for the fiscal third quarter ending March 2023 indicates a 21.9% year-over-year growth. Furthermore, TPR has an impressive surprise earnings history, as it has topped consensus estimates in each of the trailing four quarters.
The stock has gained 20.4% over the past six months to close its last trading session at $38.06.
TPR’s strong fundamentals are reflected in its POWR Ratings. It has a B overall rating, meaning Buy in our proprietary rating system.
The stock has an A grade for Quality. In the 66-stock Fashion & Luxury industry, it is ranked #10.
To access the additional POWR Ratings for TPR for Growth, Value, Momentum, Stability, and Sentiment, click here.
WMT shares were trading at $144.47 per share on Thursday morning, down $2.20 (-1.50%). Year-to-date, WMT has gained 1.42%, versus a -16.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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