August 23, 2019
August means the first day of school is quickly approaching. After months of long sunny days camping, kayaking, cycling and staying up late, August is a stark reminder in our home that school routines need to begin again. This also means several trips to retail stores and malls are in our immediate future.
For retailers, August is one of the more important shopping seasons after the winter holidays. According to the National Retail Federation (NRF), total spending on K-12 schools and college is projected at $80.7B in 2019. This represents a record spend expected by the NRF this year. On average, parents are going to spend $212 on clothes, $209 on electronics and $104 on shoes. This doesn’t include incidentals throughout the year which are also part of the school expense.
While you're standing in those long lines at the mall, or filling your virtual basket online, here are 3 stocks to consider in the back-to-school rush.
Target recently announced its second quarter earnings, which greatly surpassed Wall Street expectations. They also raised their outlook for the rest of the year. The stock price responded this week as the trailing 12-month share price has increased almost 21%. Whether this strength will continue through the back-to-school season is anyone's guess as additional tariffs from China and other potentially negative macro economic indicators loom on the horizon.
A bright spot for Target this past quarter was their same-day fulfillment (buying your items online and picking them up at the store the same day), which accounted for 1.5% of the same store sales growth. Also, it sounds as though management is doubling down with their grocery initiative, which makes up about 25% of the company's revenue.
Lastly, Target's announced partnership with Disney (Tii:DIS) comes just in time for the holiday season. Disney announced it would open 25 permanent branded shops inside Target stores across the country by Oct. 4, with 40 more coming by October 2020, plus a Disney experience on Target’s website.
Amazon's second quarter results missed expectations on earnings while revenue beat Wall Street's expectation. The trailing 12-month share price has declined by 12% as the stock has rebounded slightly since the fall from its 52-week high of $2,050.50.
During the first half of the year, the company has remained focused on grocery services. Amazon's two-hour delivery service of natural and organic products from Whole Foods stores via Prime Now expanded to additional U.S. cities, making it available in 90 U.S. metro cities.
Prime Free One Day service, which is Amazon’s free one-day shipping service, was extended across the United States and now includes 10 million products. Additionally, Amazon announced integration with Alphabet’s (Tii:GOOGL) division Google and recently Prime Video and YouTube on each other’s streaming devices. This has been a long awaited feature for many loyal Amazon customers. Further, Amazon announced a strong Prime Day performance in which sales outpaced the combined sales of Black Friday and Cyber Monday.
Best Buy reported their quarterly earnings results and adjusted their full-year outlook amid "general uncertainty" about the economy. As you can imagine, investors did not respond well to the news as the stock is off 8% just this morning. That's in addition to the stock's decline of 13% over a trailing 12-month period.
Despite the results reported this morning, Best Buy has continued to stay relevant in a retail space that has increasing favored the online options. Best Buy, and Target, have made significant strides to improve the customer experience online and in the store. Its Renew Blue strategy that was launched about five years ago has helped Best Buy capitalize on its two competitive advantages, scale and location, to fend off competition from the likes of Amazon.
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