Walmart and Target are among the retailers that should be capable of finding their niche in an ever-shifting consumer landscape.
Life is full of contradictions. People say one thing and do another. The world is a beautiful—and violent—place. And inflation can be crushing consumers even as they keep right on spending.
Gas prices remain high across the country, and Americans are clearly feeling stressed, as consumer gauges show. Nonetheless, credit card issuers report that spending is still up, and not just on essentials, as results from companies ranging from Hilton to Abercrombie & Fitch demonstrate.
There are numerous factors contributing to this phenomenon. Tax refunds didn’t climb as much as expected this year, but they are higher than 2025 due to tax code changes.
In addition, markets are still near record highs, bolstering the wealth effect among the richest Americans, who account for roughly half of U.S. spending and aren’t as worried about prices at the pump. Some well-heeled baby boomers are helping support their children and grandchildren, while the labor market appears to be strong.
That isn’t to say that retailers and other consumer companies don’t have anything to worry about. Plenty of management teams struck a cautious tone when discussing the impact of the spike in energy prices and further inflationary pressures.
Nonetheless, the first-quarter earnings season, which is mostly complete, was surprisingly robust given that it reflected in part the elevated gas prices that swept the country after the beginning of the Iran war at the end of February. A K-shaped economy, where the richest Americans help to offset belt-tightening among other consumers, is part of the equation, but many people are unwilling to delay purchases whenever possible.
That should benefit a number of retailers that can offer value to the consumer, cater to wealthier shoppers, or otherwise find their niche in an ever-shifting consumer landscape.
Here are six stocks poised to benefit.
Target
Target’s turnaround has picked up steam after the big-box retailer lost its way in 2022. It tends to attract slightly better-off shoppers and, perhaps more importantly, may have finally stopped ceding market share across the demographic spectrum after four years of nearly monthly declines. It doesn’t hurt that it yields a juicy 3.5%. Analysts expect that 2026 will finally bring year-over-year earnings per share growth after years of contraction. Despite the stock’s more than 30% year-to-date rally, it still trades at a modest 15.4 times.
Walmart
Likewise, it would be wrong to count out Walmart, which has courted a higher-earning demographic in recent years. It has also become “the REAL everything store by not just creating a marketplace and winning the last mile of everyday low-price consumables, but also allowing consumers to shop every way humanly possible,” writes Jefferies’ Carey Kaufman. The shares are pricey, but with good reason, and the recent selloff—Walmart’s worst four-day stretch in four years—seems like a buying opportunity for a company expected to grow earnings 10% this year.
Ralph Lauren
Ralph Lauren just wrapped up a great quarter, bolstered by less discounting and more full-price sales, showing that its continuing efforts at brand elevation are working. It’s little wonder that Needham analyst Tom Nikic recently called Ralph Lauren “one of the strongest fundamental stories” in his coverage. Yet even with shares trading near all-time highs, they change hands for a reasonable 20 times next year’s earnings, and they sport a 1.1% dividend yield.
TJX Cos.
It’s well documented that even millionaires, who still appreciate a bargain, shop at TJX Cos.’ TJ Maxx. That was evident in its recently completed quarter: Comparable sales were up a strong 6% and margins handily beat expectations. Ongoing trade is down among consumers, bolstering the case for off-price retailers. All but three analysts tracked by FactSet raised full-year earnings per share estimates for TJX following the company’s earnings report, and the average analyst price target implies 15% upside.
Lowe’s
Lowe’s had a good quarter in a very difficult environment, as housing market doldrums continue. That’s a testament to management savvy, although the post-earnings selloff shows Wall Street is skeptical of the stock’s near-term prospects. That’s fair enough, but any improvement in housing could quickly trickle through to the stock, and consensus calls for earnings per share growth to go from an anemic 1.7% this year to 7.1% next year.
Royal Caribbean
Finally, Royal Caribbean isn’t technically a retailer, but it gets nearly a third of its revenue from onboard passenger spending, which includes shopping and dining, and there are few easier ways for multigenerational families to travel together. Upscale Viking Holdings doesn’t allow minors on board, but Royal Caribbean ships have plenty of waterslides and private island stops, and the stock is off its highs. The family that shops and travels together stays together.
Write to Teresa Rivas at teresa.rivas@barrons.com