The Trump administration's latest round of tariffs is set to go in effect on Sept. 1, and investors are concerned about how that might impact retailers who sell a range of goods, including footwear, toys, and consumer electronics.

Despite the dark cloud of tariffs overhanging the retail industry, shares of Walmart (NYSE:WMT), lululemon athletica (NASDAQ:LULU), and Nike (NYSE:NKE) are up year to date and currently sitting near 52-week highs. Here's why investors remain bullish on these stocks.

A woman wearing a Walmart employee uniform puts groceries inside a refrigerator at someone's home.

Walmart is winning with its grocery delivery service. IMAGE SOURCE: WALMART.

The retail juggernaut finds fresh legs in grocery delivery

Shares of the retail giant are flirting with new all-time highs, currently up 22% year to date and outperforming the S&P 500 index return of 17%. Walmart is firing on all cylinders, gaining market share in key categories like food and toys and flexing its muscle in e-commerce. On a two-year stacked basis, comp sales were up 7.3% through the second quarter -- the best performance in more than 10 years. 

Walmart's second-quarter performance was impressive, especially with the tough year-over-year comparison the company faced. In the year-ago quarter, Walmart reported a stellar 4.5% growth in comp sales but its latest results still managed to beat expectations. 

Walmart's footprint with thousands of stores around the U.S. is turning into a key competitive advantage. In the second quarter, online sales soared 37%, driven by strong performance in online grocery delivery. Walmart is on pace to have 3,100 grocery pickup locations and 1,600 same-day delivery stores by the end of the year. 

What's more, the company reported that it's ahead of schedule in rolling out next-day delivery to 75% of the U.S. population. It's also set to significantly expand its grocery delivery service with the launch of in-home delivery. Given that people generally shop at Walmart for groceries -- 55% of Walmart's sales in the U.S. were groceries last year -- the discount retail giant is looking at a bright future.

A fast-growing athletic-wear store

The yoga-apparel specialist Lululemon will announce its fiscal second-quarter results after the market close on Sept. 5. Investor expectations are high, with the stock up 55% year to date.

Those gains have been fueled by stellar growth. Last year, revenue and earnings per share soared 24% and 90%, respectively, which is why Lululemon is one of the best growth stocks to consider in retail. That momentum carried over to the fiscal first quarter of this year, as total revenue increased by 20%, comp sales grew 8%, and e-commerce sales climbed 35% year over year. 

Those are terrific numbers given that the retail industry continues to experience a wave of store closures. It's expected that as many as 12,000 stores will shutter by the end of the year, but spending on athletic apparel has been the sweet spot. Lululemon is not only riding the growing demand for activewear, but management is multiplying the impact of that demand with excellent execution operationally.

Over the last three years, gross margin has improved significantly, from 48.3% in the first quarter of fiscal 2016 to 53.9% in the first quarter of this year. Growth in the direct-to-consumer channel, which generates nearly twice the operating margin of physical stores, is partly responsible for that increase. Management has also made investments to the supply chain to improve efficiency. 

The impact on gross margin from tariffs will be something to watch in the second quarter. Management anticipates an impact on gross margin from these costs of about 0.20 to 0.25 percentage points, but these costs are expected to cut only $0.04 to $0.05 per share off earnings for the full year. 

Keep in mind that the recent guidance was issued before the latest tariffs were announced, so investors will want to listen closely to any updates to the outlook. The full-year guidance issued during the first-quarter conference call called for revenue growth between 13% and 15% over fiscal 2018 and for earnings per share to climb between 25% to 27% year over year. 

A young woman wearing athletic clothing while running.


Back in the race

Like Lululemon, Nike is also experiencing tremendous momentum right now. The swoosh went through a slump a few years ago, as Adidas was running circles around Nike in North America. However, Nike returned to full stride last year, with revenue accelerating from 5% to 11% on a constant-currency basis. The shares have responded to the improvement, up 15% year to date. 

Several things are driving Nike's business performance. Investments in the direct-to-consumer business, including and apps, led to 35% growth in the digital business in fiscal 2019. Nike also sees broad-based growth across the world, highlighted by 21% growth in China last year. Recent results have also been well-balanced across men's and women's, with both categories growing by double digits. 

The most encouraging aspect of the company's recent surge is that innovation is fueling demand for Nike's footwear, which makes up two-thirds of annual revenue. Management credited 100% of its incremental revenue growth last year to new product releases, including new styles like the Max 270, VaporMax, and Max 720. 

Nike will report its fiscal first-quarter earnings after the market close on Sept. 24, and given the stock's high trailing price-to-earnings (P/E) ratio of 34, investors seem to be expecting the momentum to continue. Management's guidance calls for revenue growth to be in line with the fiscal fourth quarter. For fiscal 2020 (which ends in May), the guidance calls for reported revenue to increase in the high-single-digit range. Analysts expect earnings per share to reach $2.90, representing growth of 16.5% for the full year. 

After surging to start the year, the shares have been flat in recent months as investors are likely waiting to see how Nike handles the tariff risk. However, an analyst with Guggenheim recently issued a bullish call on Nike stock, citing the company's recent growth, digital-sales momentum, supply-chain improvements, and innovation as reasons to be optimistic. The analyst also thinks the Nike brand is strong enough to mitigate potential tariffs with price increases.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.