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Retail stocks have risen lately on improving financial stocks and bullish market sentiment amid the economic recovery. This trend is likely to continue in the short term, supported by continued advances in vaccination and rising consumer spending. The Gap (GPS), DICK'S Sporting Goods (DKS) and Urban Outfitters (URBN) stocks will maintain this momentum for the short term.
The rapid recovery of the U.S. economy and relaxation of social distancing mandates with continued advances on the vaccine front have resulted in increased foot traffic in retail stores as people prefer physical stores to online platforms for their shopping needs. The National Retail Federation (NRF) expects retail sales to grow between 10.5% and 13.5% to an estimated $ 4.44 trillion to $ 4.56 trillion in 2021.
Macroeconomic trends have recently been driving investors to bet on retail stocks as pent-up demand and rising consumer spending fuel retailers' sales. The strong investor interest in retail can be seen in the increase in the S&P Retail Select Industry Index by 45.4% since the beginning of the year. That compares to the broader S&P 500 index's return of 12.4%.
With the country well on its way to vaccinating at least 70% of its population by July 4th, retail stocks should continue to rally. Stocks of popular retailers The Gap, Inc. (GPS), DICK'S Sporting Goods, Inc. (DKS), and Urban Outfitters, Inc. (URBN) have been gaining traction lately and we don't think so that this dynamic will end in the foreseeable future.
The Gap, Inc. (Geographic positioning system)
GPS is a leading global retailer of apparel, accessories and personal care products for men, women and children. It offers a wide variety of brands such as Old Navy, Gap, Banana Republic, and Athleta. The Company operates through Company-operated stores, franchises, websites, and third-party agreements.
On May 27th, GPS and Walmart (WMT) announced a strategic partnership to bring Gap's new home collection to the Walmart retail platform. Leveraging WMT's position as the world's largest retailer should provide GPS with an excellent growth opportunity.
On April 13th, GPS announced its new credit card program agreement with Barclays PLC (BCS) and Mastercard Incorporated (MA) to provide cardholders with higher reward points for purchases made on GPS. This should significantly increase the sales volume of the GPS and at the same time improve customer loyalty and frequency.
GPS net sales increased 89.4% year over year to $ 3.99 billion for the fiscal first quarter ended May 1. Operating income increased 119.3% year over year to $ 240 million. Net income was $ 166 million, 117.8% more than the same period last year. The company's earnings per share rose 117.1% year over year to $ 0.43.
Analysts expect GPS sales this year to grow 24% year over year to $ 17.11 billion. The consensus EPS estimate of $ 1.75 for the current year indicates an increase of 182.9% year over year. Earnings per share are expected to increase 341.2% year over year to $ 0.41 for the current quarter ending July 2021. The company also has an impressive earnings surprise record as it beat consensus EPS estimates for three of the past four quarters.
GPS shares rose 200.9% last year and 60.4% so far this year. The stock is currently trading above its 200-day moving average of $ 27.36, indicating a general uptrend. It's also currently trading 16.2% below its 52-week high of $ 37.63.
GPS has an overall rating of B, which corresponds to a purchase rating in our proprietary POWR rating system. The POWR ratings are calculated taking 118 different factors into account, with each factor being optimally weighted.
The share has a grade of A for momentum and a grade of B for value, growth, sentiment and quality. GPS ranks 12th out of 65 stocks in the A-rated fashion and luxury industry.
To view additional grades for GPS, click here.
Click here to read our 2021 Retail Report
DICK'S Sporting Goods, Inc. (DKS)
DKS is a leading omni-channel sporting goods retailer offering a range of sporting goods, fitness equipment, golf equipment, and hunting and fishing equipment products. The company operates through both brick-and-mortar stores and its e-commerce platform.
On June 1, DKS announced it would open seven new and relocated stores across the country. This expansion initiative is intended to attract more customers and significantly expand the company's market reach. At the beginning of May, DKS also announced the opening of four new stores in four states.
DKS revenue rose 118.9% to $ 2.92 billion for the first quarter ended May 1. Operating income increased 355.6% year over year to $ 475.81 million, while net income improved 352.2%. year over year to $ 361.76 million over the period. The company's earnings per share rose 299.4% year over year to $ 3.41.
The consensus revenue estimate of $ 10.81 billion for the current fiscal year represents an improvement of 12.8% over the previous year. Analysts expect the company's earnings per share to be $ 8.70 this year, up 42.2% from last year. DKS also outperformed Street's EPS estimates for each of the past four quarters.
DKS has increased by 73.4% in the last six months and by 62.7% since the beginning of the year. It is currently trading above its 50-day and 200-day moving averages of $ 91.10 and $ 75.36, respectively, indicating an upward trend. DKS is currently trading 11.9% below its 52-week high of $ 102.33.
DKS has an overall grade of B, which corresponds to a buy rating in our proprietary rating system. DKS has grade A for momentum and quality and grade B for value. It ranks 13th out of 34 stocks in the A-rated athletics and leisure industry.
In addition to the above, we also offer DKS ratings for mood, growth, and stability. Click here to see all of the DKS ratings.
Urban Outfitters, Inc. (URBN)
URBN is a specialty retail company that operates two segments: retail and wholesale. The company offers a wide range of lifestyle products operated under the Nuuly brand name through Urban Outfitters Anthropology Stores, Free People Retail Stores, BHLDN Stores, Terrain, Menus & Venues and subscription rental services.
On April 19th, URBN partnered with FABSCRAP so that URBN will support FABSCRAP's expansion in Philadelphia. This partnership shows URBN's commitment to sustainable development.
URBN net sales increased 57.6% year over year to $ 927.42 million for the first fiscal quarter ended April 30. Operating income increased 137.1% year over year to $ 73.50 million. Net income was $ 53.55 million, up 138.7% over the same period last year. The company's earnings per share rose 138.3% year over year to $ 0.54.
Analysts expect URBN's revenue to grow 27.10% year over year to $ 4.38 billion this year. Consensus EPS estimate of $ 0.77 for the current quarter indicates an improvement of 120% year over year. For the current year, earnings per share are expected to be $ 2.68, an increase of 26,700% over the previous year. The company also has an impressive earnings surprise history as it has exceeded consensus EPS estimates for each of the past four quarters.
URBN is up 49% year-to-date and 41.5% over the past six months. It is currently trading above its 50- and 200-day moving averages of $ 37.45 and $ 33.38, respectively, indicating an uptrend. Additionally, the stock is currently trading 10% below its 52-week high of $ 41.95.
Unsurprisingly, URBN has an overall grade of B, which corresponds to a buy rating in our proprietary POWR ratings system. URBN has grade A for momentum and grade B for mood and quality. It ranks 17th in the fashion and luxury industries.
Click here to view additional grades for URBN.
GPS shares traded at $ 31.43 per share on Friday afternoon, down $ 0.95, (-2.93%). Since the beginning of the year, GPS is up 56.93%, compared to an 11.68% increase in the reference index S&P 500 over the same period.
About the author: Subhasree Kar
Subhasree's keen interest in financial instruments led her to pursue a career as an investment analyst. After completing her master's degree in economics, she gained knowledge of equity research and portfolio management at Finlatics.
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