U.S. Markets closed

TGT, COST & TJX Outpace Industry Year to Date: Here's Why

Zacks Equity Research

The Retail – Discount Stores industry, which comprises companies that offer apparel, accessories, footwear, beauty products, and food and beverage products, have outpaced the S&P 500 Index so far this year. The industry, which is placed in the top 43% of more than 250 Zacks industries, has rallied 18.7% in the said time frame, comfortably outpacing the index’s growth of 15.3%. The outperformance can be attributed to strategic endeavors by the companies.

Certainly, discount retailers have succeeded in creating a niche despite the rising popularity of online retailers such as Amazon AMZN that has compelled many traditional operators to exit. This has been largely supported by investments, focus on cost savings and introduction of loyalty and marketing programs. Retailers are deploying resources to enhance omni-channel capacities, introduce brands, remodel or refurbish stores and expand same-day delivery options to expedite the shopping process.

Better pricing, private label offering, effective inventory management, merchandise and operational initiatives are likely to drive sales and margins. Further, consistent store growth at convenient locations and focus on demand-driven products lend support. However, a deleverage in SG&A rate owing to higher labor expenses, occupancy costs and utilities expenses might impact margins.

In fact, there are some industry players which have performed better than the industry, courtesy of the aforementioned positives. Here we have picked three such discount retailers that are trading higher than the industry.

3 Musketeers

Target Corporation TGT has taken steps that have improved prospects in a big way. The company’s initiatives such as the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores to generate higher sales productivity bode well. Robust traffic trends, favorable store comps and surge in comparable digital sales are clearly aiding results.

This general merchandise retailer made a significant headway in the same-day delivery race by acquiring Shipt, an Internet-based grocery delivery service. Drive Up, an app-based service, is another initiative to facilitate the shopping process. The service enables customers to place orders utilizing the Target app and have them delivered to their cars. The company continues to lay emphasis on developing flexible format stores to penetrate deeper into urban areas.

The stock with a VGM Score of A has estimated earnings per share growth rate of 7.4% for the current fiscal year. Notably, shares of this Zacks Rank #2 (Buy) company have surged 22.5% so far this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Costco Wholesale Corporation COST, which operates membership warehouses, has been able to create a niche for itself on the back of growth strategies, better price management, strong membership trends and increasing penetration of e-commerce business. These factors have certainly aided the company in sustaining its impressive comparable sales run. Costco is rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. It is steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea and Taiwan.

Costco continues to be one of the dominant warehouse retailers based on the breadth and quality of merchandise offered. In fact, its strategy of selling products at heavily discounted prices has helped it to remain on growth track. The stock has a VGM Score of B and estimated earnings per share growth rate of 15.8% for the current fiscal year. We note that shares of this Zacks Rank #2 company have surged 20.7% so far in the year.

The TJX Companies, Inc. TJX, an off-price apparel and home fashions retailer, has been gaining from continued rise in consumer traffic and strong merchandising policies. These factors along with TJX Companies’ off-price model, strategic store locations and impressive brands have been driving its store and online performance. The company’s aggressive marketing and advertising campaigns through multiple mediums have been bolstering traffic at its stores. Further, with increasing number of consumers resorting to online shopping, the company has undertaken several initiatives to boost online sales and strengthen e-commerce business.

The stock with a VGM Score of B has estimated earnings per share growth rate of 23.7% for the current fiscal year. We note that shares of this Zacks Rank #3 (Hold) company have advanced 21% so far in the year.

Is Your Investment Advisor Fumbling Your Financial Future?

See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”

Click to get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
The TJX Companies, Inc. (TJX) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research