E-commerce is cool and all, but don't dismiss the chains that are nailing the brick-and-mortar game. Five Below (FIVE +0.85%), Tractor Supply (TSCO 3.59%), and Costco Wholesale (COST 0.32%) are posting healthy growth these days, and they are strong contenders to keep ringing up gains in the month ahead.
The three concepts couldn't be more different. Five Below is a deep discounter with superstores offering items across various categories priced at $5 or less. Tractor Supply has struck a strong connection with the suburban farming trend that finds more people embracing farming as a hobby. Costco continues to deliver strong double-digit comps. Let's check out why these are three top retailers that could move higher in October.
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Five Below
There are now 1,211 Five Below stores across the country. The concept has proved magnetic to young adults who appreciate the dollar-store approach to deeply discounted merch but at much higher quality points given the $5 price tag limitation.
Net sales shot 52% higher in its latest quarter, and it's easy to be skeptical. Retail was dead a year ago. Of course, Five Below is growing quickly. The twist here is that heady expansion resulted in Five Below's top line inching higher during its fiscal second quarter last year, too. Net sales have risen 55% over the past two years, a better metric for sizing up where companies are relative to their pre-pandemic operations. Net income has also more than doubled over the past two years.
Growth should slow in the current fiscal quarter, which ends around Halloween, as Five Below's earlier guidance calls for 15% to 19% in year-over-year sales growth. Expansion will be a big part of that, as the retailer has opened more than 100 stores just in the first six fiscal months of the year. However, the chain has a habit of underpromising and overdelivering.
Tractor Supply
Recreational farming has been one of the more unusual trends to emerge since the pandemic. Folks moving out of metropolitan cities to the suburbs, finally with some land at their disposal, are embracing the hobby-farm concept. Tractor Supply helps make things easier as a provider of farming tools, pet feed, and other livestock supplies.
Tractor Supply was huge last year. After five years of revenue growth in the mid to high single digits, its sales soared 27% in 2020. Business is still booming with a 25% increase through the first half of 2021.
Even Tractor Supply is surprised by how well it's faring against the challenging comparisons to last year's boom. When the fiscal year began, the chain was eyeing largely flattish sales growth. It has jacked up its guidance in back-to-back updates, and now sees net sales rising 14% to 16% this year on an 11% to 13% bump in comps.
The company isn't squandering its good fortune. It's been returning money to its shareholders in the form of dividend hikes and stock buybacks. It's also returning money to employees, raising wages last year before everybody else had to follow suit in light of the global retail labor shortage in 2021. What can one say? Tractor Supply knows how to work the harvest on many different levels.
Costco
The biggest brick-and-mortar chain on this list isn't going to be a stranger to investors. Costco is the top dog among warehouse clubs, which have proved to be an all-weather niche in the retail space. It is the world's third largest retailer with $196 billion in trailing annual sales.
Costco reported a strong close to fiscal 2021 last week. Net sales rose nearly 18% for both its fiscal fourth quarter as well for all of fiscal 2021. Like Tractor Supply, double-digit growth in comps is a big part of its success this year. Same-club sales soared 16% for the year, up a still-impressive 13.4% if we adjust for the rise in gasoline prices and the impact of foreign exchange fluctuations.
The bottom line is holding up even better, climbing 25% for all of fiscal 2021. Costco is a business that didn't take the pandemic off, and if anything it was a beneficiary last year as one of the few concepts that never closed because it was an essential retailer. Throw in a dividend that has risen every year since 2004 and a low-cost model that will be hard to duplicate, and Costco is a rare income-generating retailer with a legit moat.
Are you ready to go shopping? Five Below, Tractor Supply, and Costco are three brick-and-mortar retail stocks that are ready to pop in October.
