Tag: Walmart Inc. (WMT)

Walmart (WMT) Tackles Inflation: Buy or Sell Move for Investors?

Posted on by The INO.com Team

Inflation accelerated significantly last year, hitting a four-decade high of 9.1% in June 2022, pushing food prices higher. This led to many retailers experiencing consumers pulling back on spending. While inflation has fallen sharply from its peak, it is still higher than the Fed’s target.

According to a Labor Department report, the Consumer Price Index (CPI), a closely followed inflation gauge, grew 0.4% in September and 3.7% year-over-year, beating respective Dow Jones estimates of 0.3% and 3.6%. Food costs were up 0.2% for the third quarter in a row. On a 12-month basis, food costs jumped 3.7%, including a 6% surge for food away from home.

Walmart Cuts Grocery Prices Amid Inflation

With persistent inflation in mind, popular grocery chains are trying to help customers save with new deals. Walmart Inc. (WMT), the country’s largest grocer, recently announced that it would be “removing inflation” on some of its grocery prices starting next month.

“This year, finally, we are able to have the Thanksgiving basket that the prices are coming down versus a year ago -- we are really proud to say that the price of a Thanksgiving meal is going to come down,” Walmart U.S. President and CEO John Furner said during an exclusive interview on “Good Morning America.”

Last year, during a period of historically high inflation, WMT sold Thanksgiving ingredients at the same price as 2021. This year, the Thanksgiving basket from Walmart includes ingredients to make a meal for up to 10 people, which the company will “sell for around $2 less than last year” at just over $70.

Furner added that this move of cutting prices comes on the heels of consumer feedback: About 92% of its shoppers have expressed “some level of concern about inflation and how it will impact holiday celebrations.”

Like Walmart, fast-growing discounter Aldi expressed a similar sentiment about “high food prices” and announced price cuts of up to 50% starting November 1 and running through the year-end on more than 70 Thanksgiving favorites.

With food retailers offering temporary discounts on select items during peak seasons, including the holidays, a high volume of customers would drive into their stores and online for substantial savings. This is an effective way to boost sales, build customer loyalty, and have a competitive edge over peers.

Overall, holiday sales in November and December have averaged approximately 19% of total retail sales over the last five years, and the figure can be higher for some retailers, according to the National Retail Federation. 

Strong sales during the holiday season should give a solid boost to WMT’s stock. Shares of the retailer have gained nearly 6% over the past six months and 17% over the past year.

Let’s look at several other factors that could influence WMT’s performance in the upcoming months.

Robust Financial Performance

For the fiscal 2024 second quarter that ended July 31, 2023, WMT reported revenue of $161.63 billion, beating analysts’ estimates of $160.27 billion. This represents a 5.7% year-over-year increase. Its adjusted operating income rose 8.1% from the prior-year quarter to $7.40 billion. The company’s consolidated net income was $8.05 billion, an increase of 56.5% year-over-year.

Furthermore, the retailer’s adjusted EPS came in at $1.84, compared to $1.77 in the previous year’s period and the $1.71 expected by analysts. Its free cash flow for the six months ended July 31, 2023, was $9 billion, representing an increase of $7.20 billion compared to the same period in 2022.

“We had another strong quarter. Around the world, our customers and members are prioritizing value and convenience. They’re shopping with us across channels — in stores, Sam’s Clubs, and they’re driving eCommerce, which was up 24% globally. Food is a strength, but we’re also encouraged by our results in general merchandise versus our expectations when we started the quarter,” said Doug McMillon, WMT’s President and CEO.

“Our associates helped deliver increases in transaction counts and units sold, and profit is growing faster than sales. We’re in good shape with inventory, and we like our position for the back half of the year,” McMillon added.

Walmart’s CFO, John David Rainey, said he feels better about spending patterns than he did three months earlier, yet he described the consumer as “choiceful or discerning.” He added that seasonal moments like the Fourth of July holiday and back-to-school have helped drive sales during the second quarter.

Upbeat Full-Year Guidance

WMT raised its full-year 2024 forecast as the retailer stays committed to its low-price strategy to draw grocery customers and boost online spending. The big-box retailer now expects full-year consolidated net sales to grow by about 4% to 4.5%, compared with its prior guidance for consolidated net sales gains of 3.5%.

Further, Walmart said that its adjusted EPS for the year will range between $6.36 and $6.46, above its previous guidance of $6.10-$6.20. The company anticipates its consolidated operating income to increase approximately 7% to 7.5%.  

Impressive Historical Growth

Over the past three years, WMT’s revenue and EBIT grew at CAGRs of 5.2% and 4.6%, respectively. The company’s normalized net income increased at a CAGR of 5.8% over the same time frame, while its tangible book value grew at a CAGR of 3.9%.

Favorable Analyst Estimates

Analysts expect WMT’s revenue for the third quarter (ending October 2023) to come in at $158.30 billion, indicating an increase of 4.5% year-over-year. The consensus EPS estimate of $1.51 for the same period reflects a 0.6% year-over-year improvement. Moreover, the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

In addition, Street expects WMT’s revenue and EPS for the fiscal year (ending January 2024) to increase 5.5% and 2.9% from the previous year to $639.22 billion and $6.47, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to grow 3.6% and 10% year-over-year to $661.94 billion and $7.11, respectively.

Attractive Dividend

Earlier this year, WMT’s Board of Directors approved an annual cash dividend for fiscal year 2024 of $2.28 per share, up nearly 2% from the $2.24 per share paid for the last year 2023. The final quarterly installment of $0.57 per share would be paid on January 2, 2024, to shareholders as of record on December 8, 2023.

WMT’s annual dividend translates to a yield of 1.40% on the current price level, and its four-year average yield is 1.60%. Its dividend payouts have grown at a 1.8% CAGR over the past three years. The company has raised its dividend for 49 consecutive years.

Bottom Line

WMT’s second-quarter earnings beat analysts’ expectations as more Americans turned to the retailer for groceries and to shop online. Further, the company raised guidance for the fiscal year 2024 to reflect the second quarter upside, confidence in continued business momentum, and ongoing customer response to its value proposition.

As it sticks to its low-price reputation to draw grocery shoppers and boost online spending, the big-box retailer recently announced slashing grocery prices amid elevated inflation and help customers save more money with new deals for the holiday season, starting November.

In the previously reported quarter, seasonal moments such as the Fourth of July holiday and back-to-school have helped drive sales significantly. These sales trends typically signal patterns for the months ahead, including the holiday season.

Given its robust financials, attractive dividends, and promising growth outlook, WMT could be an ideal investment now.  

3 Stocks Benefiting From Rite Aid (RAD) Bankruptcy

Posted on by The INO.com Team

The public health crisis has considerably reshaped the landscape of the retail pharmacies and drug store industry. Despite significant supply chain disruptions and staffing shortages, the industry has seen a surge in demand due to the increasing need for remote medical services and patient care.

Mail-order pharmacies are experiencing growth, driven mainly by the rising prevalence of telehealth and remote monitoring services. In response to these changes, many retail industry players utilize digital technology to diversify their offerings beyond traditional brick-and-mortar stores. This shift has presented unique opportunities for industry heavyweights, investing strategically to simplify patient access to prescription and maintenance medications.

However, numerous challenges have weighed down these positives, including inflation, labor shortages, unfavorable drug pricing, reimbursement issues, and lawsuits facing the industry.

Among those significantly impacted is pharmacy giant Rite Aid Corporation (RAD). The company is preparing to file for Chapter 11 bankruptcy due to its considerable $3.30 billion debt as of June 3, 2023, and repercussions arising from pending litigation accusing it of contributing to the opioid epidemic through relaxed prescription policies for potent painkillers.

The company also faces adversity from the United States Justice Department, which sued RAD in March for purportedly filling 'unlawful prescriptions for controlled substances.' Officials have criticized the pharmaceutical retailer for disregarding "obvious red flags" related to potential misuse of prescribed medicines, including oxycodone and fentanyl.

As of June 3, 2023, RAD operated 2,284 pharmacy locations, representing a decline from previous years. The company closed 239 outlets since 2021, of which 145 came in 2022 and the remaining 27 in the last quarter ending June 3, 2023.

In its bankruptcy proceedings, RAD considers closing 400 to 500 stores out of more than 2,100 and transferring the remainder to creditors or willing buyers. Notwithstanding, a group of bondholders has preferred an even higher number of store closures, with discussions ongoing on the final count.

The company has been struggling with challenges beyond the opioid lawsuits as it seeks a path to profitability. For the fiscal first quarter that ended June 3, 2023, its revenues dropped 6% year-over-year to $5.65 billion. Its net loss nearly tripled from $110.19 million in the prior year quarter to $306.72 million.

RAD’s pharmacy services segment, Elixir, contributed to the overall loss. The pharmacy services segment revenues stood at $1.20 billion for the quarter, a decrease of 30.7% compared to the prior-year quarter.

The decrease in revenues was primarily the result of a reduction in Elixir Individual Part D Insurance membership due to a change in the company’s pricing structure and loss of commercial clients, partially offset by increased utilization and higher drug costs.

Shares of RAD plunged by about 50% after reports unveiled that the drugstore chain is preparing to file for Chapter 11 bankruptcy. This marked its largest-ever intraday fall and the culmination of a significant decrease from over $26 at the beginning of 2021 to below $1, where it has remained for nearly a month. The stock has declined 81.1% year-to-date to close its last trading session at $0.59.

RAD’s poor financial health has pushed many institutional holders to adjust their RAD stock holdings. Institutions hold roughly 34.5% of RAD shares. Of the 163 institutional holders, 88 have decreased their positions in the stock. Moreover, 50 institutions have sold their positions (1,512,808 shares), reflecting dwindling confidence in the company.

Furthermore, for the fiscal year 2024, the company anticipates its net loss between $650 million and $680 million, while adjusted net loss per share is expected to be between $4.29 and $4.78.

Given this backdrop, let’s look at three other stocks which could benefit from RAD’s bankruptcy:

Walmart Inc. (WMT)

WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.

WMT was exploring the purchase of a majority stake in ChenMed, a value-based care organization of more than 125 primary care clinics in 15 states focused on treating older adults.

Given WMT’s ambitious growth goals for its healthcare operations, expanding its reach with value-based care makes sense. This could lead to greater engagement with patients, payers, and providers while broadening the payment models in which the companies participate.

WMT’s board of directors approved an annual dividend for the fiscal year 2024 of $2.28 per share. The annual dividend would be paid in four quarterly installments of $0.57 per share.

The annual dividend translates to a 1.40% yield on the current price. Its dividends have grown at 1.8% and 1.9% CAGRs over the past three and five years. Its four-year average dividend yield is 1.60%. WMT has increased its dividend in each of the past 49 years. This reflects its shareholder payment abilities.

WMT’s revenue grew at CAGRs of 5.2% and 4.3% over the past three and five years, respectively. Its EBITDA grew at 3.3% and 2.7% CAGRs over the same period. Also, its EBIT grew at CAGRs of 4.6% and 3.4% in the same time frame.

WMT’s trailing-12-month ROCE, ROTC, and ROTA of 17.87%, 10.60%, and 5.50% are 58.5%, 63.7%, and 28.1% higher than the industry averages of 11.28%, 6.48%, and 4.30%, respectively. Its trailing-12-month cash from operations of $37.80 billion is significantly higher than the $505 million industry average.

WMT’s total revenues for the fiscal second quarter that ended July 31, 2023, increased 5.7% year-over-year to $161.63 billion. The company’s adjusted operating income rose 8.1% over the prior-year quarter to $7.41 billion.

In addition, its consolidated net income attributable to WMT increased 53.3% over the prior-year quarter to $7.89 billion. Also, its adjusted EPS came in at $1.84, representing an increase of 4% year-over-year. As of July 31, 2023, its long-term debt stood at $2.90 billion, compared to $4.19 billion as of January 31, 2023.

Analysts expect WMT’s revenue and EPS for the fiscal third quarter ending October 2023 to increase 4.5% and 0.6% year-over-year to $158.28 billion and $1.51, respectively. The company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 14.5% year-to-date to close the last trading session at $162.35.

Moreover, ownership data indicates institutional holders have a significant interest in WMT, accounting for approximately 34% of WMT shares. Of the 3,041 institutional holders, 1,381 have increased their positions in the stock. Moreover, 168 institutions have taken new positions (4,947,591 shares), reflecting confidence in the company’s trajectory.

Walgreens Boots Alliance, Inc. (WBA)

The Illinois-headquartered integrated healthcare, pharmacy, and retailing company WBA has recently partnered with Pearl Health, a pioneering tech platform for primary care physicians within value-based care setups.

The collaborative endeavor aims to enable community-based primary care practitioners to oversee value-based care within ACO Reach, Medicare’s accountable care scheme. Beginning in 2024, the objective is to broaden the initiative to encompass Medicare Advantage, potentially including commercial payers and Medicare in the future.

Should this partnership flourish, WBA could reap substantial benefits of wider retail opportunities and reduced reliance on fee-for-service volumes. Furthermore, WBA's offering of ancillary services, such as prescription fulfillment, medication adherence, immunizations, care gap closure, and diagnostic testing, complement this collaboration. They will also work alongside providers to aid patients transitioning from hospital environments to home-based recuperation.

As such, WBA strategically positions itself as the preferred ally for healthcare providers and systems eager to transition to value-based care and bolster community well-being. It will be worthwhile to monitor the speed at which this alliance progresses and its effects on patient referrals and hospital partnerships.

On September 12, WBA paid a quarterly dividend to its shareholders of 48 cents per share. It pays an annual dividend of $1.92 that yields 9.09% on the current market price, higher than the 4-year average dividend yield of 4.54%.

WBA’s revenue grew at CAGRs of 2.7% and 1.2% over the past three and five years, respectively. Its total assets grew at CAGRs of 4.5% and 7.1% in the same time frame.

WBA’s trailing-12-month asset turnover ratio of 1.42x is 56.4% higher than the industry average of 0.91x. Its trailing-12-month cash from operations of $1.30 billion is 158.4% higher than the $505 million industry average.

For the fiscal third quarter that ended May 31, 2023, WBA’s sales rose 8.6% year-over-year to $35.42 billion, with its U.S. Retail Pharmacy segment sales increasing 4.4% from the year-ago quarter to $27.90 billion. Its net earnings attributable to WBA and net earnings per share came at $118 million and $0.14, respectively.

As of May 31, 2023, WBA’s long-term debt stood at $8.84 billion, compared to $10.62 billion as of August 31, 2022.

Analysts expect WBA’s revenue for the fiscal first quarter ending November 2023 to increase 6% year-over-year to $35.38 billion. Its EPS is expected to come at $0.92 for the same quarter. The company surpassed the consensus revenue estimates in each of the trailing four quarters and EPS in three of the trailing four quarters.

Moreover, ownership data indicates institutional holders have made changes in WBA stock holding. Institutional holdings account for approximately 58.4% of WBA shares. Of the 1,315 institutional holders, 554 have increased their positions in the stock. Moreover, 83 institutions have taken new positions (3,286,184 shares), reflecting confidence in the company’s trajectory.

Wag! Group Co. (PET)

PET develops and supports a proprietary marketplace technology platform available as a website and mobile app that enables independent pet caregivers to connect with pet parents. It offers on-demand access to 5-star pet care, pet insurance options, premium pet products, and expert pet advice.

PET’s trailing-12-month gross profit and levered FCF margins of 74.79% and 41.37% are 111% and 712% higher than the industry averages of 35.45% and 5.09%, respectively. Its asset turnover ratio of 1.93x is 92.4% higher than the industry average of 1x.

For the fiscal second quarter that ended June 30, 2023, PET’s sales rose 55% year-over-year to $19.82 million. Its adjusted EBITDA stood at $107 thousand, compared to negative $875 thousand in the prior year quarter. Moreover, its cash, cash equivalents, and restricted cash for the six months that ended June 30, 2023, stood at $ 24.79 million, up 916.9% year-over-year.

For the fiscal year 2023, PET expects its revenue from $80 million to $84 million.

Analysts expect PET’s revenue for the fiscal third quarter ending September 2023 to increase 27.5% year-over-year to $19.60 billion. The company surpassed the consensus revenue estimates in each of the trailing four quarters.

Changes have been observed concerning institutions' holdings of PET shares. Approximately 54.2% of PET shares are presently held by institutions. Of the 31 institutional holders, 12 have increased their positions in the stock. Moreover, five institutions have taken new positions (99,056 shares).

Bottom Line

The escalating incidence of chronic diseases is boosting demand for healthcare products and medications, propelling growth in the retail pharmacy market. Increasing reliance from individuals for long-term medication management and disease-focused solutions on retail pharmacies underpins this growth momentum.

Technological advancements are expected to improve retail pharmacies' efficiency while attracting more consumers and facilitating market expansion. The global retail pharmacy is expected to reach $1.22 trillion by 2032, growing at a CAGR of 7.1%.

Meanwhile, RAD finds itself in precarious financial straits. Fueled by the few earnings from its regular business operations, the company is grappling with a debt burden of approximately $3.30 billion as of June 3, 2023. With liabilities outstripping assets by roughly $1 billion and only around $135 million cash-in-hand, RAD is at a financial crossroads.

The most viable solution appears to be filing for bankruptcy, enabling management to restructure their debt portfolio and possibly address any pending opioid settlements within one unified process.

Nevertheless, given the industry tailwinds, RAD’s competitors – WMT, WBA, and PET, stand to benefit.

 

3 Stocks to Invest in Before the Housing Market Crashes

Posted on by The INO.com Team

 

The housing market might crash in the near term as mortgage demand remains under pressure because of low housing inventory and high-average 30-year fixed mortgage rates.

Homebuyers locked into the sub-5% pandemic-era mortgage rates simply aren’t selling. The total number of homes on the market for the four weeks ending September 3, 2023, has declined 18% year-over-year, registering the biggest decline since February 2022. Meanwhile, new listings fell 9.3%.

Prospective home buyers have also been thwarted by rising property prices, which have increased for five months in a row. According to the National Association of Realtors (NAR), more than half of U.S. metro areas registered home price gains in the second quarter of 2023. It also reported that the median sale prices of existing homes are near record highs.

Last month, mortgage rates climbed to their highest level in 23 years. Mortgage rates have risen as the Federal Reserve undertook aggressive interest rate hikes since last year to curb high inflation. The weekly average of the 30-year fixed-rate mortgage as of September 7, 2023, stood at 7.12%.

The high mortgage rates led to mortgage applications reaching the lowest level since 1996. According to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 1, 2023, mortgage applications fell 2.9% compared to the prior week.

MBA’s Vice President and Deputy Chief Economist Joel Kan said, “Mortgage applications declined to the lowest level since December 1996, despite a drop in mortgage rates. Both purchase and refinance applications fell, with the purchase index hitting a 28-year low, as prospective buyers remain on the sidelines due to low housing inventory and elevated mortgage rates.”

Freddie Mac’s chief economist Sam Khater said, “The economy remains buoyant, which is encouraging for consumers. Though inflation has decelerated, firmer economic data have put upward pressure on mortgage rates, which are straining potential homebuyers in the face of affordability challenges.”

Although nonfarm payrolls increased by 187,000 in August, the unemployment rate was 3.8%, up surprisingly from 3.5% in July. If unemployment keeps rising, it could lead to missed mortgage payments and foreclosures. With skyrocketing mortgage rates, high housing prices, and the possibility of a recession between now and July 2024 at 59%, a housing market crash is highly likely.

In the event of a housing crash, defensive stocks such as Walmart Inc. (WMT), American Water Works Company, Inc. (AWK), and Eagle Materials Inc. (EXP) will likely help cushion one’s portfolio. The products and services these companies provide are always in demand, irrespective of the economic cycles.

Let’s discuss these stocks in detail.

Walmart Inc. (WMT)

WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. 

WMT’s revenue grew at a CAGR of 5.2% over the past three years. Its EBITDA grew at a CAGR of 3.3% over the past three years. In addition, its EBIT grew at a CAGR of 4.6% in the same time frame.

In terms of the trailing-12-month Return on Common Equity, WMT’s 17.87% is 58.5% higher than the 11.28% industry average. Its 5.50% trailing-12-month Return on Total Assets is 28.1% higher than the 4.30% industry average. Likewise, its 2.51x trailing-12-month asset turnover ratio is 176.2% higher than the industry average of 0.91x.

WMT’s total revenues for the second quarter ended July 31, 2023, increased 5.9% year-over-year to $161.63 billion. The company’s adjusted operating income rose 8.1% over the prior-year quarter to $7.41 billion.

In addition, its consolidated net income attributable to WMT increased 53.3% over the prior-year quarter to $7.89 billion. Also, its adjusted EPS came in at $1.84, representing an increase of 4% year-over-year.

Analysts expect WMT’s EPS and revenue for the quarter ending October 31, 2023, to increase 0.7% and 4.5% year-over-year to $1.51 and $158.22 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 19.2% to close the last trading session at $164.52.

American Water Works Company, Inc. (AWK)

AWK provides water and wastewater services. It offers water and wastewater services to approximately 1,600 communities in 14 states, serving approximately 3.4 million active customers. The company serves residential customers; commercial customers, including food and beverage providers, commercial property developers and proprietors, and energy suppliers; fire service and private fire customers; etc.

AWK’s revenue grew at a CAGR of 3.1% over the past three years. Its net income grew at a CAGR of 11.9% over the past three years. In addition, its EPS grew at a CAGR of 10.9% in the same time frame.

In terms of the trailing-12-month gross profit margin, AWK’s 58.97% is 51.7% higher than the 38.86% industry average. Its 22.08% trailing-12-month net income margin is 133.6% higher than the 9.46% industry average. Likewise, its 10.35% trailing-12-month Return on Common Equity is 19% higher than the industry average of 8.70%.

For the fiscal second quarter ended June 30, 2023, AWK’s operating revenues increased 17.1% year-over-year to $1.10 billion. Its operating income rose 32.1% year-over-year to $432 million. The company’s net income attributable to common shareholders increased 28.4% over the prior year quarter to $280 million. Also, its EPS came in at $1.44, representing an increase of 20% year-over-year.

For the quarter ending September 30, 2023, AWK’s EPS and revenue are expected to increase 0.2% and 7.3% year-over-year to $1.63 and $1.16 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 2.9% to close the last trading session at $137.56.

Eagle Materials Inc. (EXP)

EXP manufactures and sells heavy construction materials and light building materials. It operates in four segments: Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard. The company engages in the mining of limestone for the manufacture, production, distribution, and sale of Portland cement; grinding and sale of slag; and mining of gypsum for the manufacture and sale of gypsum wallboards.

On May 3, 2023, EXP announced the completion of the acquisition of Martin Marietta’s cement import and distribution business in Northern California, including a cement terminal in Stockton, California. The acquisition bodes well for the company as it will help extend and strengthen its distribution reach across its heartland U.S. cement manufacturing system.

EXP’s President and CEO, Michael Haack, said, “Our Nevada Cement operations have long-standing customer relationships in Northern California, and this acquisition will uniquely position us to better serve these and new customers with complementary imported product.”

“Our entire cement system is currently ‘sold out’, and this acquisition will enable us to more actively participate in the strong US demand environment. Our experience as a cement importer elsewhere in the US is a transferrable expertise at Eagle, and we expect a smooth ownership transition,” he added.

EXP’s EBIT grew at a CAGR of 24.4% over the past three years. Its net income grew at a CAGR of 56% over the past three years. In addition, its levered FCF grew at a CAGR of 54.7% in the same time frame.

In terms of the trailing-12-month net income margin, EXP’s 21.82% is 230.7% higher than the 6.60% industry average. Its 13.32% trailing-12-month levered FCF margin is 269.3% higher than the 3.61% industry average. Likewise, its 34.36% trailing-12-month EBITDA margin is 98.7% higher than the industry average of 17.29%.

EXP’s revenue for the first quarter ended June 30, 2023, increased 7.1% year-over-year to $601.52 million. The company’s adjusted net earnings rose 17.2% over the prior-year quarter to $126.15 million. Its adjusted EPS came in at $3.55, representing an increase of 25.9% year-over-year. Also, its adjusted EBITDA increased 16.4% year-over-year to $214.29 million.

Street expects EXP’s EPS and revenue for the quarter ending September 30, 2023, to increase 13.5% and 4.9% year-over-year to $4.24 and $634.84 million, respectively. Over the past year, the stock has gained 48.4% to close the last trading session at $180.19.

Investor Alert: Are These 11 Back-to-School Stocks Making Big Moves?

Posted on by The INO.com Team

The end of summer and the onset of fall usually mean one thing in the United States — it’s time to replenish supplies and head back to school. This also translates to wardrobe refreshes and gadget upgrades. The average planned back-to-school spending per household in the United States has gradually increased year-over-year to $848.9 in 2021, with electronics or computer-related equipment emerging as the biggest category.

While stressed American consumers have been forced to go bargain hunting to squeeze out the maximum possible value from money for bare essentials so that more of it can be set aside in favor of outdoor experiences instead of manufactured goods, the trend is unlikely to be significantly impacted even by the seismic shifts in the consumption ecosystem.

In fact, since the supply chain disruptions in the aftermath of the pandemic, concern for stockouts has only pulled back-to-school sales have increasingly been pulled forward to the end of July, compared to the conventional peak during the beginning of August. Prime Week by Amazon.com, Inc. (AMZN) has also done its fair bit to catalyze that shift.

Given the above, we have shortlisted a few relevant apparel/fashion/luxury, grocery, and technology stocks below that are expected to benefit from back-to-school sales to determine if they are worth buying in the aftermath of the sales event and ahead of the holiday season.

Apple Inc. (AAPL)

The technology and consumer electronics giant, which has a history of revolutionizing products like the personal computer, smartphone, and tablet, has begun scripting the next key chapter in its success story with the announcement of its first product in the AR/VR market, the Apple Vision headset, which will sell for $3,499 when it is released early next year.

Despite its 7.9% dip during the past month, AAPL’s stock has gained 22.2% over the past six months. While the business boasts excellent profitability, in view of its stretched valuation in the face of frigid trade relations between the U.S. and China, AAPL’s manufacturing hub and key market, investors should wait for a better entry point.

Walmart Inc. (WMT)

Sam Walton, founder of the largest grocer in the world, built the company on a no-frills approach aimed at making groceries and other products more affordable. With 60% of its revenue in the U.S. coming from the grocery segment, the retail giant’s focus on value through “everyday low prices” has helped it become relatively immune to the seismic shifts in the consumption ecosystem.

WMT’s stock has dipped slightly over the past month but has gained 11.7% over the past six months. With core PCE at 4.3%, indicating stretched budgets and high borrowing costs in the foreseeable future, WMT is best positioned to capture the upside from “modest improvement” in sales of big-ticket and discretionary items like electronics during the Back-to-School season.

Target Corporation (TGT)

TGT sells an assortment of general merchandise and food items to its guests through its stores and digital channels. With product categories such as apparel and accessories, beauty and household essentials, food and beverage, and home furnishing and décor, the budget retailer has converted its 1900+ stores into mini-malls offering a range of “cheap chic” items.

Due to the recent miss in revenue and a not-so-optimistic outlook for the holiday season, TGT’s stock has lost 9.5% over the past month. However, the slump has also brought the stock to a more attractive valuation, which could protect investors from downside risks and a potential upside from a mid-term recovery in consumer confidence and market sentiment.

Ross Stores, Inc. (ROST)

ROST operates two brands of off-price retail apparel and home fashion stores, Ross Dress for Less (Ross) and dd’s DISCOUNTS, with the latter offering in-season, name-brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off department and discount store regular prices every day.

ROST’s shares have gained about 5% over the past month and 8.5% over the past six months. Given its healthy profitability, investors could consider buying the stock to capitalize on a rally during Back to School and the holiday season.

Dollar General Corporation (DG)

As a discount retailer, DG offers merchandise, including consumable items, seasonal items, home products, and apparel.

DG’s stock has plummeted 7.4% over the past month and 27.6% over the past six months. In view of its bleak prospects, investors are advised to stand by until sentiments improve before investing in the stock.

Logitech International S.A. (LOGI)

Headquartered in Lausanne, Switzerland, LOGI designs, manufactures, and markets products that connect people to working, creating, gaming, and streaming worldwide. The company offers accessories, such as mice, keyboards, webcams, and other accessories for mobile devices. The company sells its products under the Logitech, Logitech G, ASTRO Gaming, Streamlabs, Blue Microphones, and Ultimate Ears brands.

Despite a 4.3% dip in the past month, LOGI’s shares have gained 24.2% over the past six months. While the business boasts excellent profitability, investors could wait for the pendulum of personal consumption to swing from services back in favor of high-ticket discretionary goods before buying into it.

Crocs, Inc. (CROX)

CROX designs, develops, and markets casual lifestyle footwear and accessories for women, men, and children, containing Croslite material, a proprietary, molded footwear technology. The company’s segments include North America; Asia Pacific; Europe, the Middle East, Africa, and Latin America (EMEALA); and the HEYDUDE Brand.

CROX’s stock has lost 7.8% over the past month. While the decently profitable business is well-positioned to benefit from increased expenditure on outdoor expenses, investors could wait for further valuation comfort before taking a long position in the stock.

Dillard's, Inc. (DDS)

DDS is a fashion apparel, home furnishings, and cosmetics retailer. The company’s operating segments include its retail department stores and a general contracting construction company.

DDS’ stock has gained 5.6% over the past month. Despite the recent price gains, its excellent profitability at a decent valuation means that investors could benefit from further upside in the stock.

Levi Strauss & Co. (LEVI)

The well-known apparel company designs and markets jeans, casual wear, and related accessories for men, women, and children under the Levi's, Signature by Levi Strauss & Co., Denizen, Dockers, and Beyond Yoga brands.

LEVI’s stock has lost 5.9% over the past month and 22.4% over the past six months. While the sentiment has been improving lately, investors would be wise to wait for its valuation to improve before deciding to add the stock to their portfolio.

Abercrombie & Fitch Co. (ANF)

As an omnichannel specialty retailer of apparel, personal care products, and accessories for men, women, and kids, ANF sells its offerings primarily through its digital channels, company-owned stores, and various third-party arrangements.

ANF’s stock has surged 26.3% over the past month and 68.3% over the past six months. Given its excellent track record and profitability, investors could consider investing in the stock.

Shoe Carnival, Inc. (SCVL)

SCVL is an omnichannel family footwear retailer that offers customers an assortment of dress, casual, and athletic footwear for men, women, and children.
SCVL’s stock has plummeted 15.9% over the past month. While valuations have become more attractive, investors are advised to wait for the outlook to improve before acquiring a stake in the business.

Walmart (WMT) vs. Costco Wholesale (COST) vs. Target (TGT): Navigating Inflation's Impact on Grocery Chains

Posted on by The INO.com Team

U.S. domestic consumption has been on a roller coaster ride over the past three years. People have gone from not being free enough to spend practically free money to spending like there’s no tomorrow.

That, in turn, led to a not-so-transitory inflation, the hottest since the 1980s, forcing the Federal Reserve to implement eleven interest-rate hikes in a span of 16 months, taking the benchmark borrowing cost to 5.25%-5.50%.

Meanwhile, with the pandemic firmly in the rear-view mirror, Americans have been going above and beyond to compensate for the years spent indoors trying to substitute real experiences with virtual ones.

However, with the stash of stimulus cash fast dwindling, average American consumers have been forced to go bargain hunting to squeeze out the maximum possible value from money, which has gotten dearer so that more of it can be set aside in favor of outdoor experiences instead of manufactured goods.

Consequently, they have been forced to trade down to budget-friendly retailers, leaving the businesses that offer something in between wrong-footed and stranded. Although budget retailers have lost sales from low-income consumers, that loss has been offset by increased business from the middle-income consumer segment.

However, not budget retailers are created equal. Hence, let’s take a closer look at three such retailers' varying fortunes and prospects.

Walmart Inc. (WMT) has been relatively immune to the seismic shifts in the consumption ecosystem, as discussed in our piece on June 22. Hence, despite closing 21 stores in 12 states and DC this year owing to poor financial performance being cited by the company, the big-box retailer surpassed Street expectations for both earnings and revenue for the second quarter of fiscal year 2024.

Encouraged by the strong performance, WMT also raised its full-year guidance. It said it now anticipates consolidated net sales will rise by about 4 to 4.5% in the fiscal year. It expects adjusted earnings per share for the full year will be between $6.36 and $6.46.

WMT’s e-commerce sales for the U.S. also jumped 24% year-over-year as customers bought more items from the company’s growing third-party marketplace and placed more orders for store pickup and delivery.

With the double-edged sword of inflation cutting both ways, while WMT attracted new and more frequent shoppers, including younger and wealthier customers looking for both convenience and value, the shift back to services is taking a bite out of sales of goods, particularly after a pandemic-fueled spending boom. Consequently, consumers have been buying fewer discretionary items, such as electronics and home appliances, and trading down for lower-priced items.

Since general merchandise prices have dropped compared with last year, WMT saw a “modest improvement” in sales of big-ticket and discretionary items like electronics and home goods during the quarter. According to the CFO, John David Rainey, the retailer also had fewer markdowns as the inventory was down by 5% at the end of the second quarter compared to a year ago.

Moreover, as food prices remained steady, and some staple grocery items have fallen, shoppers have been buying more fresh meats, seafood, and eggs, accounting for nearly 60% of the annual U.S. sales for the nation’s largest grocer.

Although consumers are facing newer challenges, such as the return of student loan payments, with the Back-to-School season getting off to a strong and early start and with stock price gains of more than 10% year-to-date, WMT is looking forward to the holiday season with cautious optimism.

Warehouse club Costco Wholesale Corporation (COST) found its famous $1.50 hot dog and soda combo back in the headlines as inflation bit harder to squeeze pockets further. The hot dog combo and its rotisserie chicken, whose price has been pegged at $4.99 since 2009, are the retailer’s loss leaders that lure in customers who are likely to buy other items as well.

This could be helpful, especially in times like these in which, according to CFO Richard Galanti, even COST’s relatively well-to-do members have been ditching pricier beef products for cheaper meats such as pork and chicken, while others are bypassing the fresh meat aisle entirely and opting for cheaper canned meat and fish products with longer shelf life. Even the retailer has been forced to restrict itself from handing out unlimited free samples to shoppers.

Ahead of its earnings release, analysts expect COST’s revenue and EPS for the fourth quarter of fiscal year 2023 to increase by 8.3% and 14.5% year-over-year to $78.05 billion and $4.82, respectively. As a result, its revenue and EPS for the fiscal would increase by 6.3% and 9.8% year-over-year to $241.23 billion and $14.58, respectively. That could lend momentum to the stock, which has gained more than 19% year-to-date.

At the other end of the spectrum, Target Corporation (TGT), which also caters to value-conscious shoppers, missed Wall Street’s sales estimate for the fiscal second quarter and consequently slashed forecasts for the year ahead. The company expects comparable sales to decline by about mid-single digits for the full fiscal year and earnings per share to range from $7 to $8, from a previously expected range of $7.75 to $8.75.

One of the reasons behind this bearish outcome and outlook could be the shifting patterns of consumer expenditure, which was redirected to prioritize groceries over discretionary items to make room for outdoor experiences.

As a result, TGT, which caters to a segment generally more affluent than that served by WMT and draws only about 20% of its yearly revenue from grocery, found its top line getting negatively impacted and even its online sales declining by 10.5% year-over-year. However, given the higher margins on non-essential items compared to those for food items, TGT’s quarterly EPS of $1.80 exceeded Street expectations of $1.39.

TGT is taking measures to stem the rot, including remodeling its digital experience in the next three months. The remodeled site would include different landing experiences, more personalized content, enhanced search functionality, ease of navigation, and other updates to bring more joy and convenience to our digital guests.

However, even as WMT has been experiencing a “modest improvement” in discretionary goods, such as blenders, hand mixers, and other kitchen tools in the second quarter, as some consumers cook more at home, TGT has not shared the same optimism.

With the Back-to-School season in its early days, sales of frequency categories, such as food and beauty items, have not been enough to offset weaker discretionary sales at the retailer, which has seen its stock price decline by more than 19% since the beginning of the calendar year.

Bottom Line

With increased borrowing costs expected to keep weighing on the economy in the foreseeable future, WMT is expected to keep benefiting from consumers’ shift to essentials, which could offset weaker clothing and electronics sales until a potential recovery at the beginning of the holiday season.

Meanwhile, in order to manage and improve slimmer margins from food items compared to general merchandise, WMT has been doubling down on initiatives to increase the efficiency of its operations through innovations in packaging and Artificial Intelligence (AI) and Machine Learning (ML).

Hence, given its stronghold on sales of low-margin and high-volume groceries and other essentials, shoots of recovery in discretionary expenditure, and ever-growing moat by figuring out what the customer wants to buy and how best to get it to them, WMT’s prospects appear to be the most promising of the three retail chains.