Updated on May 19th, 2022 by Bob Ciura
The U.S. retail industry is in a state of change. Consumers are increasingly shopping online, favoring the convenience of delivery rather than taking a trip to a store. Many retailers are struggling to adapt, having relied too heavily on malls for traffic. Some retail bankruptcies have already occurred, and more are likely to follow as the trend toward Internet retail seems unstoppable.
Making matters even worse for brick-and-mortar retailers is the threat of the coronavirus and the related damage to the economy. Multiple large U.S. cities have been placed on lockdown, virtually eliminating foot traffic to retailers. The uncertainty regarding when the coronavirus will end, as well as the likelihood of a recession in the U.S., has caused many retail stocks to crash along with the broader stock market over the past several weeks.
With all this in mind, we created a downloadable list of retail stocks, along with important financial metrics such as price-to-earnings ratios and dividend yields.
You can download an Excel spreadsheet of all retail stocks (with metrics that matter) by clicking the link below:
But not all retailers are doomed. We still view many retail stocks favorably, although investors must be selective and focus on stocks that offer a combination of value, growth, and/or dividends. Investors must also retain a long-term focus, as the short-term will continue to be volatile for the retail industry.
This article will discuss our top 10 retail stocks in the Sure Analysis Research Database. The stocks are ranked according to expected total returns over the next five years.
Table Of Contents
You can instantly jump to any specific stock by clicking on the links below:
- Top Retail Stock #10: Walgreens Boots Alliance (WBA)
- Top Retail Stock #9: Big Lots (BIG)
- Top Retail Stock #8: Macy’s Inc. (M)
- Top Retail Stock #7: Ross Stores (ROST)
- Top Retail Stock #6: Foot Locker (FL)
- Top Retail Stock #5: Lowe’s Companies (LOW)
- Top Retail Stock #4: Target Corporation (TGT)
- Top Retail Stock #3: Best Buy (BBY)
- Top Retail Stock #2: Dick’s Sporting Goods (DKS)
- Top Retail Stock #1: The Gap, Inc. (GPS)
Top Retail Stock #10: Walgreens Boots Alliance (WBA)
- 5-year expected annual returns: 14.0%
Walgreens Boots Alliance is the largest retail pharmacy in both the United States and Europe. Through its flagship Walgreens business and other business ventures, the company employs more than 325,000 people and has more than 13,000 stores.
On March 31st, 2022, Walgreens reported Q2 results for the period ending February 28th, 2021. Sales from continuing operations grew 3% over the prior year’s quarter, driven by COVID-19 vaccinations and testing. U.S. retail comparable sales grew 15%, which is a 20-year high growth rate. Adjusted earnings-per-share grew 26%, from $1.26 to $1.59, and exceeded analysts’ consensus by $0.19. The company has beaten analysts’ estimates for 7 consecutive quarters.
Walgreens reiterated its guidance for low-single digit growth of its annual earnings-per-share.
Click here to download our most recent Sure Analysis report on Walgreens (preview of page 1 of 3 shown below):
Top Retail Stock #9: Big Lots (BIG)
- 5-year expected annual returns: 14.1%
Big Lots is a home discount retailer with a focus on closeouts and low prices. With $6 billion in sales and a market cap of around $930 million, this S&P 600 component can trace its history to 1967.
Source: Investor Presentation
The company reported Q4 and full year 2021 results on March 3rd, 2022 and announced a quarterly dividend of $0.30 per share. With 2021 earnings of $5.33 per share, and a forward annualized dividend of $1.20, the dividend is well covered by their existing business, despite the decrease in earnings since 2020 where they reported $7.35 per share in earnings.
Despite a negative impact of around $0.30 per share as a result of adverse shrink, and the issues with the supply chain that characterized 2021, the management team is confident that 2022 will see these issues abate. In 2022 the company plans on opening 50 net new stores, more than they have in the past 5 years combined, which should provide an opportunity for additional revenue growth.
Big Lots stock has a P/E below 5, making it a deep-value stock. Shares also have a dividend yield of 4.1%, while we expect no EPS growth. Total returns are estimated at 14.1% over the next five years.
Click here to download our most recent Sure Analysis report on Big Lots (preview of page 1 of 3 shown below):
Top Retail Stock #8: Macy’s Inc. (M)
- 5-year expected annual returns: 14.3%
Macy’s is a department store company that operates brick and mortar stores, as well as online stores under the Macy’s, Bloomingdale’s and Bluemercury brands. Macy’s was founded in 1929 and is headquartered in Cincinnati, Ohio. The company owns highly valuable real estate, such as the Herald square building in New York City.
Macy’s reported its fourth quarter earnings results on February 28. The company reported that its revenues totaled $8.7 billion during the quarter, which was ahead of forecasts, beating the consensus by $220 million. Macy’s revenues were up by 28% versus the previous year’s quarter, which had seen a large pandemic impact.
The revenue increase can be explained by the easing impact of the coronavirus pandemic in Macy’s home market, the US, where economic reopening efforts allowed Macy’s to operate more freely compared to the comparable quarter from the previous year. The steep revenue increase resulted in a major margin improvement compared to the previous year’s quarter, which is why the company managed to get its profitability up significantly.
Macy’s is also seeing strong growth due to its transformation into a multi-channel retailer.
Source: Investor Presentation
Macy’s generated earnings-per-share of $2.45 during the fourth quarter, which was way better than what the analyst community had expected. 2020 was a weak year for the retailer, as was expected due to the large impact the pandemic had on its business model. 2021 was a way stronger year for Macy’s again, however. The company earned $5.31 per share on an adjusted basis, which was the strongest result in the last decade.
Macy’s stock has a P/E of 4.2, making it a deep-value stock. Shares also have a dividend yield of 2.2%, and we expect the company to grow its earnings-per-share by 1% per year. Total returns are estimated at 12.1% over the next five years.
Click here to download our most recent Sure Analysis report on Macy’s (preview of page 1 of 3 shown below):
Top Retail Stock #7: Ross Stores (ROST)
- 5-year expected annual returns: 14.7%
Ross Stores operates 1,628 stores with off-price apparel and home fashion in 40 states. It also operates 295 dd’s DISCOUNTS stores in 21 states and has a market cap of $33.6 billion. The retailer offers attractive merchandise at a 20%-60% discount compared to the regular prices of department and specialty stores.
In early March, Ross Stores reported (3/1/22) financial results for the fourth quarter of fiscal 2021. Management compared the results to those of 2019, which it considers more representative of normal business conditions. Despite a surge in omicron variant cases just before Christmas and waning government fiscal stimulus, same-store sales grew 9%.
However, earnings-per-share dipped -19% over the 2019 quarter due to higher freight and labor costs as well as COVID related costs. Management raised the dividend by 8.8% but provided lackluster guidance for 2022, expecting earnings-per-share of $4.71-$5.12, mostly due to high inflation.
Ross Stores has recovered from the pandemic and thus it has reinstated its dividend, its share repurchases and has resumed its growth plans. It also expects to enhance its market share significantly thanks to the large number of retail bankruptcies caused by the pandemic.
Click here to download our most recent Sure Analysis report on ROST (preview of page 1 of 3 shown below):
Top Retail Stock #6: Foot Locker (FL)
- 5-year expected annual returns: 15.0%
Foot Locker is an athletic apparel retailer that operates nearly 3,000 stores in 27 countries. Foot Locker should generate about $8.9 billion in revenue this year.
Foot Locker reported fourth quarter and full-year earnings on February 25th, 2022, and results were better than expected. However, guidance was extremely weak, missing estimates widely, and the stock declined -30% on the day of the earnings release. Total revenue was $2.34 billion, which was up 6.8% year-over-year.
This was due in part to a 0.8% comparable sales increase, which was attributable to apparel “significantly” outpacing the core footwear segment. Earnings-per-share came to $1.67 in Q4, which was 21 cents ahead of estimates. For the year, earnings came to $7.77 per share, a new record by a wide margin.
The company guided for sales to decline by about -5% for 2022, with comparable sales growth of -9%. Square footage is expected to decline fractionally as stores are closed, and gross margin is slated for 30.1% to 30.3%. Finally, earnings-per-share is guided for $4.25 to $4.60.
The company also boosted its dividend by 33%, to $0.40 per share quarterly. In addition, the board authorized a new share repurchase program of up to $1.2 billion.
Click here to download our most recent Sure Analysis report on FL (preview of page 1 of 3 shown below):
Top Retail Stock #5: Lowe’s Companies (LOW)
- 5-year expected annual returns: 16.0%
Lowe’s Companies is the second-largest home improvement retailer in the US (after Home Depot). Lowe’s operates or services more than 2,200 home improvement and hardware stores in the U.S. and Canada.
Lowe’s reported fourth quarter and full year results on February 23rd . Total sales for the fourth quarter came in at $21.3 billion compared to $20.3 billion in the same quarter a year ago. Comparable sales increased 5%, while U.S. home improvement comparable sales increased 5.1%. Net earnings of $1.2 billion rose from $978 million in 4Q 2020. Diluted earnings per share of $1.78 was a 35% increase from $1.32 a year earlier.
For the full fiscal year, Lowe’s generated diluted EPS of $12.04. The company repurchased 16.3 million shares in 2021 for $13.1 billion. Additionally, they paid out $2 billion in dividends. The company remains in a strong liquidity position with $1.1 billion of cash and cash equivalents.
The company provided a fiscal 2022 outlook and believes they can achieve diluted EPS in the range of $13.10 to $13.60 on total sales of roughly $98 billion. Lowe’s expects to repurchase $12 billion worth of common shares in 2022.
The combination of multiple expansion, 6% expected EPS growth and the 1.5% dividend yield lead to total expected returns of 14.3% per year.
Click here to download our most recent Sure Analysis report on Lowe’s (preview of page 1 of 3 shown below):
Top Retail Stock #4: Target Corporation (TGT)
- 5-year expected annual returns: 16.1%
Target was founded in 1902 and after a failed bid to expand into Canada, has operations solely in the U.S. market. Its business consists of about 1,850 big box stores, which offer general merchandise and food, as well as serving as distribution points for the company’s burgeoning e-commerce business.
Target reported first-quarter results on May 18th. Quarterly revenue of $25.17 billion beat analyst estimates by $688 million, but earnings-per-share of $2.19 missed estimates by $0.87. Cost inflation led to the disappointing EPS figure.
We see continued comparable sales growth as driving results, along with a small measure of margin expansion, and a tailwind from the buyback. Target’s digital efforts are also working extremely nicely, and the company’s small-format stores are performing very well, opening a new avenue of growth for the company in the coming years. The remaining buyback authorization should be good for a significant tailwind to earnings-per-share in the coming years.
We expect 4% annual EPS growth through 2027. In addition, the stock has a current dividend yield of 2.4%. Lastly, the stock has a 2022 P/E of 10.4, below our fair value P/E of 18. Total returns are estimated at 16.1% per year over the next five years.
Click here to download our most recent Sure Analysis report on Target (preview of page 1 of 3 shown below):
Top Retail Stock #3: Best Buy (BBY)
- 5-year expected annual returns: 17.1%
Best Buy Co. Inc. is one the largest consumer electronics retailers in North America with operations in the U.S. and Canada. Best Buy sells consumer electronics, personal computers, software, mobile devices, and appliances and provides services. At end of Q4 FY2022, Best Buy operated 938 Best Buy stores and 16 Best Buy Outlet Centers in the U.S., 21 Pacific Sales Stores, 127 Best Buy stores in Canada, and 33 Best Buy Mobile Stand-Alone Stores in Canada. The company’s annual sales exceeded $51B in fiscal 2021.
Best Buy reported Q4 FY2022 results on March 3rd, 2022. Enterprise revenue decreased to $16.365 billion from $16.937 billion. Non-GAAP diluted EPS decreased to $2.73 from $3.48 on a year-over year basis. Comparable enterprise revenue decreased (-2.3%), on very tough comparisons, and a slow down after six quarters of growth.
Source: Investor Presentation
Comparable domestic online sales fell (-11.2%) to $5.91B compared to the prior year due to the reopening of the U.S. economy. Domestic online sales now comprise about 39.4% of total domestic revenue versus 43.2% last year.
Best Buy guided from 1.0% – 4.0% sales decline and non-GAAP diluted EPS of $8.85 to $9.15 in fiscal 2023.
We expect annual returns of 14.5% over the next five years for Best Buy stock. Shares currently yield 4.2%, while we expect 6% annual EPS growth. Expansion of the P/E multiple could boost returns by 4.3% per year.
Click here to download our most recent Sure Analysis report on Best Buy (preview of page 1 of 3 shown below):
Top Retail Stock #2: Dick’s Sporting Goods (DKS)
- 5-year expected annual returns: 17.6%
Dick’s Sporting Goods is a leading sporting goods retailer, offering a vast array of authentic, high-quality sports equipment, apparel, footwear, and accessories. The stores also contain unique specialty shop-in-shops dedicated to Team Sports, Athletic Apparel, Golf, Outdoor, Fitness and Footwear. Additionally, Dick’s owns and operates Golf Galaxy and Field & Stream special stores.
Source: Investor Presentation
Dick’s reported fourth quarter and FY results on March 8th. For the full-year 2021, net sales of $12.3 billion were record setting, driven by a 26.5% growth in consolidated same store sales. Of note, eCommerce penetration grew from 16% of total net sales in fiscal 2019 to 21% in fiscal 2021. Due to strong increased sales and gross margin rate expanding, DKS grew diluted EPS to $13.87 compared to $5.72 in 2020. Non-GAAP EPS grew 157% from $6.12 in FY 2020 to $15.70 in FY 2021.
During FY 2021, the company repurchased 10.79 million shares of its common stock at an average price of $109.04 per share, for $1.18 billion. There remains roughly $1.86 billion under their new five-year share repurchase program of up to $2 billion of common stock. The company has $2.6 billion in cash and cash equivalents, with no outstanding borrowings under their $1.6 billion revolving credit facility.
Leadership provided a 2022 outlook for diluted EPS to be in the range of $9.96 to $11.13. They also provided guidance for full year 2021 non-GAAP diluted EPS of $11.70 to $13.10.
DKS stock has a current dividend yield of 2.4%. We expect the company to grow its EPS by 5% per year. Lastly, the stock has a 2022 P/E of 6.5, below our fair value P/E of 10.5. Total returns are expected to reach 17.6% per year over the next five years.
Click here to download our most recent Sure Analysis report on DKS (preview of page 1 of 3 shown below):
Top Retail Stock #1: The Gap, Inc. (GPS)
- 5-year expected annual returns: 18.1%
The Gap Inc. is an American clothing and accessories retailer worldwide. The company was founded in 1982 by Nick Taylor, Donald Fisher, and Doris F. Fisher and is headquartered in San Francisco, California. The company has a market capitalization of $5.69 billion. The Gap operates six business lines: Gap, Banana Republic, Old Navy, Intermix, Hill City, and Athleta. The company has 3,399 store locations in over 40 countries, of which 2,835 were company operated.
The company reported fourth-quarter and full-year results for Fiscal Year (FY)2021 on March 3, 2022. Fourth-quarter comparable sales were up 3% versus 2019 and 3% year-over-year, for the quarter net profit was a loss of $16 million compared to a loss of $184 million in Q42019. Thus, for the quarter, earnings per share were negative $0.04 versus a negative $0.49 in the fourth quarter of 2019.
The fiscal year 2021 net sales were $16.7 billion, which is a 2% increase versus the fiscal year 2019. Online sales grew 57% versus 2019 and represented 39% of total net sales for the year. Comparable sales for the fiscal year 2021 increased 8% versus 2019 and were up 6% year-over-year.
Source: Investor Presentation
The management team provided the FY2022 financial outlook. The management team expects diluted earnings to be $1.95 to $2.15 per share for the year. Net sales growth is expected to be in the low single-digit range versus the fiscal year 2021, with first-quarter net sales expected to be down mid to high-single digits versus the first quarter of 2021.
The company is now paying a dividend of $0.60 per share for the year. Since the company earned $1.44 per share for FY2021, this gives us a dividend payout ratio of 42%. Thus, the dividend is very well covered with earnings.
We expect 4% annual EPS growth through 2027. Finally, shares appear undervalued, leading to total expected returns of 18.1% per year over the next five years.
Click here to download our most recent Sure Analysis report on GPS (preview of page 1 of 3 shown below):
The brick-and-mortar retail industry is broadly struggling, as consumers are taking more of their shopping online. This trend should only accelerate in the future, meaning it is up to retailers to adapt. Many have done just that, by investing in their own e-commerce platforms and closing unprofitable stores. These are the brick-and-mortar retailers that are best-equipped to survive and continue to grow.
A potential recession in the U.S. would be a significant near-term challenge, as the retail industry is not immune from economic downturns.
With all that said, long-term investors should focus on the highest-quality retail stocks that can survive various challenges. The 10 retail stocks on this list have bright long-term futures, and are likely to return to growth after a recession ends.
Investors should closely monitor their financial results in future quarters, to ensure their progress remains on track. But these 10 retailers should continue to generate strong profits, steady growth, and pay rising dividends.
The following lists contain many more high-quality dividend stocks:
- The Dividend Aristocrats List is comprised of 65 stocks in the S&P 500 Index with 25+ years of consecutive dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 38 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.