Welcome to back-to-school season—for Main Street and Wall Street.
This year, the typical American family with school aged children is expected to spend $669.28 on back-to-school shopping for grades K-12. This represents a 5% jump from last year. The total bill is expected to weigh in at $26.5 billion. That number doesn’t even include college students—combined spending for back to school and college is expected to reach $74.9 billion.
That’s a lot of clothing, backpacks and electronics. As American consumers become more willing to open their wallets, retailers profit. We’re seeing this in action this week—in addition to back-to-school season, this is also the peak quarterly reporting week for retailers.
So today let’s review the companies that have already reported earnings, and then look ahead to the big earnings announcements over the next few days. Along the way I’ll give you my Portfolio Grader ratings for each stock.
Yesterday, Urban Outfitters Inc. (URBN) kicked things off with its second-quarter report. The lifestyle specialty retailer reported lower sales at its namesake brand, but this was offset by a stronger turnout from its Anthropolgie and Free People brands. Company-wide sales climbed 7% year-on-year to $811 million, just beating the $807 million consensus estimate. Earnings per share were $0.49, in line with estimates. While URBN shares rose after the report, I’m not convinced this will be enough to make me revise my D-rating (Sell) on the stock.
Today was a busier day for the industry, with market-moving reports from three top retailers:
Dick’s Sporting Goods (DKS) rose after it beat Q2 sales and earnings estimates by 2.4% and 3.1% respectively. The company also reiterated its FY 2014 guidance; then again, that translates to just 0.4%-5.9% earnings growth and 1%-3% same-store sales growth. DKS is also a D-rated Sell.
Home Depot Inc. (HD) announced that Q2 revenue jumped 5.7% to $23.81 billion, while earnings per share jumped 22.6% to $1.52. Analysts had predicted $1.45 EPS on $23.61 billion so Home Depot posted a 4.8% earnings surprise and a 0.8% sales surprise. HD is a C-rated hold, but as I mentioned in today’s Stock of the Day, I may upgrade the stock once the latest data have been plugged in.
TJX Companies Inc. (TJX) shares rose to a 3-month high after the off-price retailer posted 4% same-store sales growth and 10.6% earnings growth for the second quarter. TJX Companies earned $0.75 per share (adjusted) on $6.92 billion in revenue, surpassing the consensus estimates by 2.7% and 0.6% respectively. The company also raised its adjusted EPS outlook for FY 2015. However, there is risk in investing in TJX right now, so I want to wait and see how the new numbers factor into Portfolio Grader before changing my current recommendation. TJX is a D-rated Sell.
The activity is only going to pick up as we progress through the week, so let’s take a look at the earnings reports on deck.
- American Eagle Outfitters Inc. (AEO): F-rated Strong sell.
- L Brands Inc. (LB): D-rated Sell.
- Lowe’s Companies Inc. (LOW): C-rated Hold.
- PetSmart Inc. (PETM): C-rated Hold.
- Staples Inc. (SPLS): D-rated Sell.
- Target Corp. (TGT): F-rated Strong sell.
- Aeropostale Inc. (ARO): F-rated Strong sell.
- Children’s Place Inc. (PLCE): D-rated Sell.
- Dollar Tree Inc. (DLTR): C-rated Hold.
- GameStop Corp. (GME): D-rated Sell.
- Gap Inc. (GPS): C-rated Hold.
- New York & Company Inc. (NWY): F-rated Strong Sell.
- Ross Stores Inc. (ROST): D-rated Sell.
- Sears Holdings Corp. (SHLD): D-rated Sell.
- Tuesday Morning Corp. (TUES): B-rated Buy.
- Foot Locker Inc. (FL): B-rated Buy.
As you can see, the pickings of retail stocks to buy are somewhat slim. Of the 20 companies I covered above, only two are buys at current prices: FL and TUES. So if you’re looking to invest in retail, I would proceed with caution. Please only add companies that score B or higher in Portfolio Grader. Doing so will help you minimize risk and maximize returns as we round up the seasonally weak month of August. You may also pick any of the nine stocks featured in my “Top Stock” lists below:
- Click here to see my top Multiline Retail stocks.
- My top Specialty Retail companies.
- My top Internet and Catalog Retailers.