In this article, we discuss 11 best department store stocks to buy. If you want to skip our discussion on the department store landscape, head directly to 5 Best Department Store Stocks To Invest In.
In the face of unprecedented economic challenges, consumers have defied expectations by maintaining their spending habits despite inflation and multiple Federal Reserve rate hikes. The economic uncertainty of 2024 has shifted the focus to rebuilding trust, making loyalty programs a core growth opportunity for retailers. Deloitteobserved that a key strategy for 2024 is to reshape the loyalty landscape by prioritizing trust. Despite a high participation rate in loyalty programs, retailers struggle to convert members into active users. Studies show that customers in retail loyalty programs exhibit significantly higher trust in the brand, and increasing trust can potentially boost annual spending by 30%. The key drivers for profitable loyalty in 2024 include personalization, co-branding, and data monetization.
While the digital acceleration from the pandemic has improved online and omnichannel shopping experiences, in-store purchases remain the preferred engagement medium, despite showing the lowest trust scores. Retailers are exploring expansive store remodels and innovative tech solutions to enhance the shopping experience, build trust, and foster profitable loyalty. As the retail industry shifts from mass-market approaches to micro-strategies, personalization at scale will become crucial. Retailers are prioritizing AI-driven personalized product recommendations in 2024, but there is a need for increased confidence in effectively utilizing AI across businesses.
According to the Commerce Department's Census Bureau, retail sales in 2023 increased by 5.6% on a year-over-year basis, signaling robust consumer spending. The positive outlook for the retail sector is influenced by ongoing technological advancements, with generative AI standing out as a transformative force. Generative AI, showcasing remarkable progress, is gaining traction among consumers. A recent Accenture survey revealed that two-thirds of consumers either use or consider using an AI shopping assistant for product recommendations based on compatibility or budget constraints. National Retail Federation’s discussions highlighted AI's significant impact on retail, emphasizing its role in creating more human-centric experiences, especially through "conversational commerce."
The retail industry is seeing big waves. On February 27, Macy's, Inc. (NYSE:M)revealed its intention to close 150 "underproductive" stores within the next three years, constituting over a fifth of its department store network. Approximately 50 of these closures are expected by the end of 2024, following a subdued trading outlook. The company, currently undergoing a "bold new chapter," plans to shift its focus towards luxury shopping, with initiatives such as opening 15 higher-end Bloomingdale's stores and 30 Blue Mercury cosmetics locations. Macy's, Inc. (NYSE:M) also plans to invest in around 350 locations, emphasizing smaller store expansions. This strategic shift follows the earlier announcement of cutting 2,350 jobs, or 3.5% of its workforce.
To benefit from the growth potential in retail, some of the best department store stocks to buy include Walmart Inc. (NYSE:WMT), Target Corporation (NYSE:TGT), and Costco Wholesale Corporation (NASDAQ:COST).
Our Methodology
We selected the following department store stocks based on hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey’s database of 933 elite hedge funds tracked as of the end of the fourth quarter of 2023. The list is arranged in ascending order of the number of hedge fund investors in each firm. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
11 Best Department Store Stocks To Invest In
A customer shopping for lifestyle and beauty products at a physical store.
Five Below, Inc. (NASDAQ:FIVE) is a specialty value retailer in the United States, offering a wide range of products including accessories, clothing, personal care items, home decor, sports equipment, toys, electronics accessories, media products, arts and crafts supplies, school products, party goods, and snacks. Five Below, Inc. (NASDAQ:FIVE) ranks 11th on our list of the best department store stocks.
On January 30, Oppenheimer downgraded Five Below, Inc. (NASDAQ:FIVE) stock from Market Perform to Perform. Analyst Brian Nagel expressed concerns about the slowing growth dynamics for Five Below, Inc. (NASDAQ:FIVE), attributing it to factors such as a larger base of units, reduced remodeling opportunities, and increased reinvestment requirements. Despite acknowledging the strength of the company's unique model and consumer proposition, Nagel highlighted these challenges, particularly in the context of already elevated operating margins for Five Below, Inc. (NASDAQ:FIVE).
According to Insider Monkey’s fourth quarter database, 33 hedge funds were bullish on Five Below, Inc. (NASDAQ:FIVE), compared to 30 funds in the last quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP is the leading stakeholder of the company, with 760,529 shares worth over $162 million.
Like Walmart Inc. (NYSE:WMT), Target Corporation (NYSE:TGT), and Costco Wholesale Corporation (NASDAQ:COST), Five Below, Inc. (NASDAQ:FIVE) is one of the best department store stocks to buy.
Polen U.S. SMID Company Growth Strategy stated the following regarding Five Below, Inc. (NASDAQ:FIVE) in its fourth quarter 2023 investor letter:
“Five Below, Inc. (NASDAQ:FIVE) is a discount retailer selling toys, games, and merchandise targeting teens, tweens, kids, and their parents. Consumer spending has proven resilient through the holiday season, and discount retailers such as Five Below are very well positioned for consumers increasingly finding ways to seek value. This has materialized through same-store solid sales growth over the year. Stepping back, Five Below has been a remarkably consistent company over many years and still has a compelling opportunity to more than double its store count over time.”
Macy's, Inc. (NYSE:M) is an omni-channel retail organization operating in the United States, offering a diverse range of merchandise, including apparel, accessories, cosmetics, home furnishings, and other consumer goods under brands such as Macy's, Bloomingdale's, and Bluemercury. Macy's, Inc. (NYSE:M) is one of the best department store stocks to buy. On February 27, the company reported Q4 non-GAAP EPS of $2.45 and a revenue of $8.12 billion, outperforming Wall Street estimates by $0.46 and $30 million, respectively.
According to Insider Monkey’s fourth quarter database, 36 hedge funds were long Macy's, Inc. (NYSE:M), compared to 32 funds in the last quarter. Ken Griffin’s Citadel Investment Group is the biggest stakeholder of the company, with 4.6 million shares worth nearly $94 million.
Here is what ClearBridge Investments Small Cap Value Strategy has to say about Macy's, Inc. (NYSE:M) in its Q3 2021 investor letter:
“Meanwhile, Macy’s, an omnichannel retail organization that operates stores, websites, and mobile applications under the Macy’s, Bloomingdale’s, and Bluemercury brands, also had a strong quarter (+21.5%). Macy’s delivered strong second-quarter earnings, beating on earnings and revenue and raising guidance as the retailer continues to pay down debt and grow its digital business.”
Dollar Tree, Inc. (NASDAQ:DLTR) operates discount variety retail stores under two segments, Dollar Tree and Family Dollar. It ranks 9th on our list of the best department store stocks to watch. On January 29, J.P. Morgan upgraded its rating on Dollar Tree, Inc. (NASDAQ:DLTR) shares from Neutral to Overweight. The firm anticipates Dollar Tree, Inc. (NASDAQ:DLTR) to become a double-digit EPS compounder on a multi-year basis, citing top and bottom-line drivers in place at the core banner and stabilization at the Family Dollar concept. Analyst Matthew Boss also highlighted Dollar Tree's limited exposure to the Red Sea shipping channel and expressed confidence in the company's ability to reach its $10 EPS target by FY26. Additionally, he identified Dollar Tree as a potential dual deflation beneficiary.
According to Insider Monkey’s fourth quarter database, 39 hedge funds were long Dollar Tree, Inc. (NASDAQ:DLTR), compared to 38 funds in the prior quarter. Paul Hilal’s Mantle Ridge LP is the largest stakeholder of the company, with 12.10 million shares worth $1.72 billion.
The London Company Mid Cap Strategy stated the following regarding Dollar Tree, Inc. (NASDAQ:DLTR) in its fourth quarter 2023 investor letter:
“Dollar Tree, Inc. (NASDAQ:DLTR) – DLTR shares outperformed in 4Q as the business demonstrated share gains, progress on the rollout of multi-price assortment, and bold capital allocation with a large stock buyback during the third quarter. We believe the investments the company has made over the last year will continue to support higher returns going forward. Further, we view valuation as attractive on a sum-of-the-parts basis and have conviction in the management team, which now consists of the best operators in the retail industry.”
The Kroger Co. (NYSE:KR) is a food and drug retailer in the United States, operating multiple formats such as combination food and drug stores, multi-department stores, marketplace stores, and price impact warehouses. The Kroger Co. (NYSE:KR) is one of the best department store stocks to monitor. On March 7, the company reported a Q4 non-GAAP EPS of $1.34 and a revenue of $37.1 billion, outperforming Wall Street estimates by $0.21 and $40 million, respectively.
According to Insider Monkey’s fourth quarter database, 45 hedge funds were bullish on The Kroger Co. (NYSE:KR), compared to 41 funds in the last quarter. Warren Buffett’s Berkshire Hathaway is the largest stakeholder of the company, with 50 million shares worth $2.28 billion.
In its fourth quarter 2023 investor letter, Oakmark Global Fund stated the following regarding The Kroger Co. (NYSE:KR):
“The Kroger Co. (NYSE:KR) (U.S.) is the second-largest grocery retailer in America, behind only Walmart. Although the grocery industry is highly competitive, Kroger’s scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery businesses. However, we believe Kroger’s performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year’s EPS, which we believe is attractive given Kroger’s competitive positioning and earnings growth outlook. The pending merger with Albertsons could accelerate the company’s earnings growth and produce additional scale advantages. If the merger is not approved, the company will have the capacity to return over 25% of its market cap to shareholders.”
Ranking 7th on our list of the best department store stocks is Dollar General Corporation (NYSE:DG), a discount retailer that offers a wide range of consumable products, including paper goods, packaged and perishable foods, snacks, health and beauty items, pet supplies, and tobacco. On December 7, Dollar General Corporation (NYSE:DG) reported a Q3 GAAP EPS of $1.26 and a revenue of $9.69 billion, topping Wall Street estimates by $0.05 and $10 million, respectively.
According to Insider Monkey’s fourth quarter database, 47 hedge funds were bullish on Dollar General Corporation (NYSE:DG), up from 38 funds in the last quarter. Brandon Haley’s Holocene Advisors is the biggest stakeholder of the company, with 1.9 million shares worth $257.2 million.
Mawer Investment Management made the following comment about Dollar General Corporation (NYSE:DG) in its Q3 2023 investor letter:
“On the other hand, not all businesses were able to hold up well this quarter; certain names were hit by short-term market sentiment and expectations. Dollar General Corporation (NYSE:DG)’s reported lower operating margins, suggesting that the company’s ability to pass along additional price increases appears limited given the pressures facing its customers.”
Ross Stores, Inc. (NASDAQ:ROST) operates off-price retail stores in the United States, selling apparel, accessories, footwear, and home fashions. Ross Stores, Inc. (NASDAQ:ROST) ranks 6th on our list of the best department store stocks to buy. On March 5, the company declared a quarterly dividend of $0.3675 per share, a 9.7% increase from its prior dividend of $0.3350. The dividend is payable on March 29, to shareholders on record as of March 15. The company's board also approved a new two-year $2.1 billion stock repurchase authorization for fiscal years 2024 and 2025.
According to Insider Monkey’s fourth quarter database, 50 hedge funds were bullish on Ross Stores, Inc. (NASDAQ:ROST), compared to 54 funds in the last quarter. D E Shaw is the largest stakeholder of the company, with 2.10 million shares worth nearly $291 million.
In addition to Walmart Inc. (NYSE:WMT), Target Corporation (NYSE:TGT), and Costco Wholesale Corporation (NASDAQ:COST), Ross Stores, Inc. (NASDAQ:ROST) is one of the best department store stocks to buy.
TimesSquare Capital U.S. Mid Cap Growth Strategy made the following comment about Ross Stores, Inc. (NASDAQ:ROST) in its Q3 2023 investor letter:
“In Consumer-oriented sectors, we lean towards value-oriented or specialty retailers, franchise models, as well as premium brands. We have seen challenges this quarter stemming from falling consumer confidence and sentiment measures. Faring better was Ross Stores, Inc. (NASDAQ:ROST) and its 1% markup. They operate off-price retail stores featuring apparel and home fashion. Their second quarter results outpaced estimates on better customer traffic and higher gross margin due to lower freight costs. Management raised its full-year sales comparisons and earnings guidance.”
