Consumer spending is one of the biggest drivers of economic activity and is playing a critical role in the ongoing economic recovery from the pandemic. If people aren’t heading out to spend money on goods and services, businesses will struggle to stay profitable which leads to high unemployment. That’s part of the logic behind the enormous amount of stimulus payments that are going to out to encourage consumer spending. It looks like that strategy is working, as retail sales jumped 9.8% in March according to the Commerce Department. This figure measures purchases at stores, at restaurants, and online and the fact that it was the largest monthly gain since last May shows that consumers are heading out and doing their part to help the economy.
This bodes well for retail stocks, as Americans are feeling confident about shopping and their financial positions at this time. Household savings are at 60-year highs, and it’s fair to assume that retail stores will see heavy foot traffic for months as the vaccine is further distributed. If you are interested in adding exposure to retail stocks and want a few to add to your shopping list, here are 3 great options to consider:
1. Five Below
Given all of the recent changes that retail companies have had to deal with thanks to the pandemic, it’s refreshing when you find a company in the sector that has a lot of opportunities for future store growth. This is the case with Five Below (NASDAQ:FIVE), a discount retailer that offers a variety of merchandise that is typically priced at $5 and below and caters to teen and preteen consumers. The typical Five Below store is on the smaller side at around 8,500 square feet and located in existing shopping centers, which means that it doesn’t cost the company a lot to expand. It’s also quite impressive that the average Five Below store has a payback period of under a year.
There’s a lot to like about this company’s business model since younger generations love shopping at Five Below stores and parents are happy for them to shop there due to its low-priced items. Keep in mind that off-price retailers can hold up well regardless of what the economy is doing, which is another strong selling point for this stock. The company recently reported a record Q4 comparable sales increase of 13.8% and saw its Q4 net income increase by 12.3% to $123.9 million. Five Below plans to open 170 to 180 new stores this year and is expanding into e-commerce, which is why it is one of the more intriguing names in retail at this time.
2. Deckers Outdoor
Sometimes, focusing on a single niche is the best way to stand out in the crowded retail sector. That’s a big reason why Deckers Outdoor Corporation (NYSE:DECK) is an intriguing retail stock to consider buying. It’s a global footwear designer and distributor that has a history of developing niche fashion lifestyle and performance brands and turning them into market leaders. You are probably already familiar with the company’s iconic UGG brand, which features luxury sheepskin footwear and accessories. Deckers Outdoor Corporation also owns the brands Teva, which is known for its sports sandals, and Sanuk, which are surf sandals.
Investors should be attracted to this company’s consistent earnings track record, as it has not missed top and bottom-line consensus earnings estimates in any fiscal quarter over the last 4 years. Deckers recently reported a Q3 net sales increase of 12.2% to $876.8 million along with a record $1.078 billion in Q3 revenue, which confirms that the company has been resilient during the pandemic and is benefitting from the rise in consumer spending. It’s also worth mentioning that the company’s premium running shoe brand called HOKA ONE ONE is rapidly expanding. HOKA ONE ONE delivered a Q3 brand net sales increase of 52.1% and is expected to become a billion-dollar brand by FY23.
3. Nike
Last but not least is Nike (NYSE:NKE), the world’s leading designer and marketer of high-quality athletic footwear, athletic apparel, and accessories. This is a retail stock that stands out thanks to its iconic brand that is instantly recognizable thanks to the infamous Nike “swoosh”. The company has a strong pipeline of new products that should help to increase sales in the coming months and investors should be impressed with how Nike is adapting to changing purchasing trends by improving its direct-to-consumer sales channel.
While the company’s recent Q3 earnings report wasn’t too impressive given supply constraints, the fact that Nike reported a digital sales increase of 54% and that revenue in China rose by 42% should give investors confidence in adding shares. There’s also the fact that sports are coming back as more people get vaccinated, which could be a catalyst this year that drives sales growth. The bottom line here is that Nike is one of the premier retail stocks to add to your shopping list and the recent dip should be viewed as a strong buying opportunity.