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These Retail Stocks Could See Big Gains From the Third Stimulus Checks, Say Analysts

As the United States readies for a third round of fiscal stimulus, a number of retailers are poised to see a spike in consumer spending — and potentially on Wall Street.

According to analysts, President Joe Biden’s sweeping $1.9 trillion COVID-19 relief bill could boost the stock prices of a range of apparel and footwear companies, which are expected to benefit upon the rollout of $1,400 in direct payments to millions of Americans. Among those, market watchers were bullish on athleticwear giants Nike Inc.; casual and outdoor businesses such as Deckers Outdoor Corp. and VF Corp.; general merchandisers Dollar Tree Inc. and Dollar General Corp.; Dick’s Sporting Goods Inc. and other sporting goods chains; plus off-pricers including The TJX Companies Inc.

“We’ve seen how COVID has altered the retail landscape, and it’s made the strong stronger and the weak weaker,” said CFRA Research senior equity research analyst Camilla Yanushevsky, whose “strong” rating on the Swoosh has remained in place since January last year. She cited the resumption of sports, such as the upcoming Tokyo Olympics and NBA Finals, as tailwinds for the Beaverton, Ore.-based brand, plus its Consumer Direct Offense and revamped organizational structure.

Yanushevsky also called out the performances of Deckers Brands, FN’s 2020 Company of the Year, and Vans and Timberland parent VF.

“We think Deckers’ product portfolio as a whole is very well positioned and catered to secular trends and consumer behavior. We’re seeing accelerating consumer appetites for both working from home and outdoor exercise,” she said. As for VF, the analyst also touted the recent acquisition of Supreme, which has been hailed as a smart move for both parties. “The key things right now in footwear are digitalization and casualization,” she said, “and these companies — VF, Deckers and Nike — have really led in terms of that.”

JPMorgan equity research analyst Matthew Boss also anticipated “accelerating secular market share” at Nike and fellow sportswear firm Lululemon Athletica Inc., as well as TJX Companies. Federal financial aid, according to analysts, could ultimately drive more business at off-price chains given their higher exposure to lower- and middle-income shoppers, which are expected to get the full $1,400 in checks.

In a distribution note, Boss wrote that the investment banking firm’s strategists estimated that the “effective end date to the pandemic” could come in as soon as 40 to 70 days — ahead of initial consensus expectations for a third-quarter end date — due to “stimulus injections and potential minimum-wage policy changes, bolstering household liquidity and healthy consumer balance sheets.” By category, he forecasted that consumer spending will be focused on casual items and outerwear in the first half of the fiscal year, while the second half of 2021 will see a return to officewear and shopping for special occasions.

What’s more, sporting goods stores like Dick’s, suggested Third Bridge senior consumer sector analyst Nick Shields, will continue to benefit from the broader coronavirus-induced shift to at-home and active lifestyles.

“You’re going to see more spending on the travel and leisure sectors in the next few months as a good portion of the country gets vaccinated,” he explained. “There are certain apparel purchases that are made with that travel and leisure spending — say a visit to Florida, where you’ll want to buy warmer-weather clothes, or a ski trip, for which you’d probably go to a Dick’s Sporting Goods or REI.”

Lastly, analysts have reinforced the strength of general merchandisers and big-box businesses, which offer a one-stop shop experience for consumers who might still feel reluctant to visit multiple stores for their necessities. Dollar General and Bentonville, Ark.-based Walmart Inc. are among those that are predicted to see big gains as the vast majority of their stores are within just five to 10 miles of millions of Americans’ homes.

Over the weekend, the Senate passed Biden’s proposed relief plan, which calls for direct checks to individuals and tax credits for families, as well as an extension to weekly unemployment benefits. The bill is expected to be approved by the House of Representatives on Tuesday and signed by Biden before the end of the week. As for whether the fiscal boost will prove beneficial to retailers in the long run, analysts say that remains to be seen.

“When people have more money in their pockets, they’re going to spend more money,” explained Sam Poser, equity analyst at Williams Trading. However, “the question is: How much of this stimulus is icing for some of these companies, and how much of it is cake? Theoretically, everybody is going to benefit in the short term, but what happens later?”

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