With 51.6% of the American population having as of June 7 received at least one shot of COVID-19 vaccine, retail stores are now enjoying increasing foot traffic. This, along with an upbeat job market and rising consumer spending, positions retail store operators well for solid sales growth in the coming quarters. Investors’ interest in the retail space is evident in the SPDR S&P Retail ETF’s (XRT) 16.3% gains over the past three months compared to the SPDR S&P 500 Trust ETF’s (SPY) 10.1% returns.
The increasing integration of data analytics in company management to streamline operations and enhance supply chain efficiency could lead to further growth in this space. Total retail sales in the United States are expected to increase to $5.94 trillion in 2024 from $5.47 trillion in 2019..
So, we think it could be wise to bet on Foot Locker, Inc. (FL) and Sportsman's Warehouse Holdings, Inc. (SPWH) that are currently trading at discounts to their peers but hold immense growth potential.
Click here to checkout our Retail Industry Report for 2021
Foot Locker, Inc. (FL)
Founded in 1879, FL is an athletic footwear and apparel retailer that operates through 2,998 retail stores in 27 countries and through various e-commerce sites and mobile apps. The company retails athletic footwear, accessories, equipment, and team licensed merchandise under the Foot Locker, Champs Sports, Eastbay and other brand names.
On May 26, 2021, FL announced the launch of a basketball-inspired capsule collection designed by the new creative director of its women's business, Melody Ehsani. This move could further increase the company’s sales.
The company’s sales increased 83.1% year-over-year to $2.15 billion for the first quarter, ended May 1, 2021. Its income from operations came in at $282 million compared to a $105 million operating loss in the prior year period, while its net income was $202 million compared to a $110 million net loss in the year-ago period. The company’s EPS came in at $1.93 compared to a $1.06 loss per share in the same quarter, previous year.
In terms of forward non-GAAP PEG, FL’s 0.55x is 59.1% lower than the 1.36x industry average. In terms of forward Price/Sales, the stock’s 0.75x is 44.2% lower than the 1.35x industry average.
For its fiscal year 2022, analysts expect FL’s EPS and revenue to increase 100% and 13.2%, respectively, year-over-year to $5.62 and $8.55 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has rallied 89.8% over the past nine months to close yesterday’s trading session at $61.24.
FL’s POWR Ratings reflect this promising outlook. The company has an overall A rating , which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Growth, and a B grade for Value, Momentum, Sentiment and Quality. Within the A-rated Athletics & Recreation industry, FL is ranked #1 of 34 stocks. To see the additional POWR Ratings for FL (Stability), click here.
Sportsman's Warehouse Holdings, Inc. (SPWH)
SPWH, together with its subsidiaries, operates 112 stores in 27 states as an outdoor sporting goods retailer in the United States. It provides various products under camping, clothing, fishing and footwear categories. In addition, the company offers various private label and special make-up offerings under the Rustic Ridge, Killik, Vital Impact and Yukon Gold brands.
Great Outdoors Group, LLC agreed to acquire Sportsman’s Warehouse Holdings, Inc. for $18.00 per share in an all-cash transaction on December 21, 2020. The transaction has been approved by the board of directors of Sportsman’s Warehouse and the stockholders of Sportsman’s Warehouse approved the merger at a special stockholders meeting held on March 23, 2021.
The company’s net sales increased 32.5% year-over-year to $327 million for the first quarter, ended May 1, 2021. Its adjusted EBITDA grew 186.6% year-over-year to $23.5 million, while its adjusted net income increased 2400% year-over-year to $12.5 million. The company’s adjusted EPS increased 2700% year-over-year to $0.28.
In terms of forward Price/Sales, SPWH’s 0.54x is 59.7% lower than the 1.35x industry average. In terms of forward EV/Sales, the stock’s 0.70x is 55.5% lower than the 1.56x industry average.
Analysts expect SPWH’s EPS and revenue to increase 13.7% and 3.3%, respectively, year-over-year to $1.82 and $1.40 billion for fiscal 2023. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock gained 38.1% over the past six months to close yesterday’s trading session at $17.92.
SPWH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Value and Momentum, and a B grade for Quality.
We have also graded SPWH for Growth, Stability and Sentiment. Click here to access all SPWH’s ratings. SPWH is ranked #6 in the Athletics & Recreation industry.
Click here to checkout our Retail Industry Report for 2021
FL shares were trading at $61.81 per share on Tuesday morning, up $0.57 (+0.93%). Year-to-date, FL has gained 53.87%, versus a 13.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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