14 retail stocks that are firing on all cylinders

By Bill Peters and Philip van Doorn

These retailers have been increasing same-store sales while improving their profit margins

When retailers report their quarterly results, it may seem as if the news is always dismal. But there are exceptions.

Below is a broad screen of U.S. retailers, showing those that increased comparable-store sales while also improving their profit margins.

Much of the financial media's earnings coverage centers on whether or not companies "beat" or "miss" analysts' consensus estimates for revenue, profit or even estimates of what the companies' own estimates for coming quarterly results might be. And those beats or misses can cause turmoil (or euphoria) for shareholders. Here are three examples:

Shares of Dollar General Corp. DG plunged 32% on Aug. 29, after the company reported quarterly revenue, comparable-store sales and average transaction amount that were all below consensus estimates among analysts polled by FactSet. During the company's earnings conference call, Dollar General Chief Executive Todd Vasos said "lower-end" consumers were under pressure and focusing on purchasing what they needed, rather than what they wanted, according to a transcript provided by FactSet. Despite the "triple miss," DG's quarterly revenue increased 4.2% from the year-earlier quarter, while its comparable-store sales were up 0.5%.Dollar Tree Inc. DLTR followed with a disappointing report of quarterly results on Sept. 4, but the company's chief operating officer cited economic difficulties among "middle- and upper-income households." The stock dropped 28% that day. The company missed analysts' estimates across the board, but its quarterly revenue and comparable-store sales were both up 0.7% from the year-earlier quarter.Walmart Inc. WMT ended a five-quarter streak of slowing comparable-store sales when it reported its results on Aug. 15 and beat analysts' estimates for revenue, adjusted earnings per share and comparable-store sales. The stock rose nearly 7% that day and was up 53% for 2024 through Friday, excluding dividends. The company's quarterly domestic comparable-store sales were up 4.3% from the year-earlier quarter and its total revenue was up 4.8%. Walmart Chief Executive Doug McMillon had a different take on the U.S. economy during the company's earnings call: "So far, we aren't experiencing a weaker consumer overall."

Screening retailers to identify winners

Walmart beat analysts' estimates, while Dollar General and Dollar Tree missed them. But all three increased revenue and comparable-store sales.

Walmart grew its comparable-store sales significantly, while also expanding its quarterly gross profit margin and its operating margin from the year-earlier quarter. Both of these margins were down for Dollar General. For Dollar Tree, the gross margin expanded while the operating margin narrowed.

A company's gross margin is its net sales, less the cost of goods or services sold, divided by sales. The cost of goods or services sold includes the actual expenses when making or purchasing the items or providing the services. Gross margin reflects pricing power. A combination of an expanding gross margin and increasing sales is a good sign.

The operating margin incorporates more overhead and other expenses that aren't directly related to the production of goods and services, while also adding depreciation and amortization back to costs. It can be summarized as earnings before interest, taxes, depreciation and amortization, or Ebitda, divided by sales.

To screen U.S. retailers for those showing improved operating results, we began with the companies in the consumer-staples and consumer-discretionary sectors of the the S&P Composite 1500 Index XX:SP1500, which is made up of the S&P 500 SPX, the S&P MidCap 400 MID and the S&P SmallCap 600 indexes SML.

We then narrowed the list to companies for which FactSet provides comparable-store sales data. We excluded restaurants, auto dealerships and marine dealerships from the list, which left us with 50 companies.

Here are the 14 remaining retailers in the S&P Composite 1500 Index that increased quarterly comparable-store sales at least 3% from the year-earlier quarter, while also expanding their gross margins and their operating margins:

   Company                          Ticker   Increase in quarterly comparable-store sales  Gross margin  Gross margin for year-earlier quarter  Operating margin  Operating margin for year-earlier quarter 
   Deckers Outdoor Corp.             DECK                                           21.9%        54.82%                                 49.35%            18.21%                                     12.39% 
   Abercrombie & Fitch Co.           ANF                                            18.0%        61.41%                                 58.77%            18.91%                                     13.39% 
   PriceSmart Inc.                   PSMT                                            7.8%        17.06%                                 16.78%             5.81%                                      5.60% 
   Costco Wholesale Corp.            COST                                            7.0%        12.55%                                 12.07%             4.64%                                      4.17% 
   Sprouts Farmers Market Inc.       SFM                                             6.7%        36.28%                                 35.10%            10.40%                                      9.50% 
   Ralph Lauren Corp.                 RL                                             5.0%        66.74%                                 64.62%            17.73%                                     16.94% 
   Burlington Stores Inc.            BURL                                            5.0%        39.37%                                 38.42%             8.05%                                      6.38% 
   Dick's Sporting Goods Inc.        DKS                                             4.5%        36.73%                                 34.42%            16.60%                                     13.04% 
   Walmart Inc.                      WMT                                             4.3%        25.11%                                 24.61%             6.59%                                      6.32% 
   American Eagle Outfitters Inc.    AEO                                             4.0%        34.58%                                 33.07%            12.07%                                     10.21% 
   Ross Stores Inc.                  ROST                                            4.0%        28.29%                                 27.67%            14.52%                                     13.30% 
   TJX Cos. Inc.                     TJX                                             4.0%        30.26%                                 30.04%            12.43%                                     11.84% 
   Murphy USA Inc.                   MUSA                                            3.1%         5.09%                                  4.62%             5.11%                                      4.60% 
   Gap Inc.                          GAP                                             3.0%        42.45%                                 37.43%            10.91%                                      7.16% 
                                                                                                                                                                                            Source: FactSet 

The comparable-store sales changes are based on total sales for all the companies except for Walmart, for which FactSet only provided the figures based on domestic sales.

Some of Walmart's biggest rivals are also showing signs of pulling ahead of the pack. At Costco Wholesale Corp. (COST), demand has been strong enough that executives felt comfortable raising membership fees for the first time in seven years. Costco reports its latest round of quarterly results on Sept. 26.

Elsewhere, trends at discount chains, such as Ross Stores Inc. (ROST) and TJX Cos. (TJX) have held up as higher prices for basics keep shoppers on the lookout for bargains - even as Ross warned that its low- to moderate-income customers "continue to face persistently high costs on necessities, pressuring their discretionary spending." Recent gains for Gap Inc. (GAP), which also owns Old Navy and Banana Republic, have come after weaker results a year earlier, and have followed efforts by the company to shuffle its executive team and regain cultural relevance.

Leaving the companies in the same order, here is a summary of opinion about their stocks among analysts working for brokerage firms polled by FactSet:

   Company                           Ticker   Share "buy" ratings  Share neutral ratings  Share "sell" ratings  Sept. 13 price  Consensus price target  Implied 12-month upside potential 
   Deckers Outdoor Corp.              DECK                    65%                    31%                    4%         $935.07               $1,078.05                                15% 
   Abercrombie & Fitch Co. Class A    ANF                     60%                    40%                    0%         $142.19                 $184.33                                30% 
   PriceSmart Inc.                    PSMT                    67%                    33%                    0%          $89.76                  $88.00                                -2% 
   Costco Wholesale Corp.             COST                    59%                    38%                    3%         $916.00                 $894.86                                -2% 
   Sprouts Farmers Market Inc.        SFM                     18%                    82%                    0%         $102.10                  $99.75                                -2% 
   Ralph Lauren Corp. Class A          RL                     62%                    28%                   10%         $178.64                 $192.65                                 8% 

(MORE TO FOLLOW) Dow Jones Newswires

09-16-24 1335ET

Copyright (c) 2024 Dow Jones & Company, Inc.