The retail sector is expanding with innovations in social commerce, AI, personalization, and automation, driving improved outcomes. Consumer spending has increased on goods like apparel and essentials, as well as pet care. In this favorable landscape, investors could consider innovative retail stocks like Petco Health and Wellness Company, Inc. (WOOF), Chewy, Inc. (CHWY), and Levi Strauss & Co. (LEVI).
The retail sector, adapting to new consumer trends, offers stable investment potential, as consumer goods companies typically see consistent demand. With the U.S. Federal Reserve cutting interest rates by 25 basis points to 4.3% - 4.5% in December and projecting two more cuts by the end of 2025, the favorable economic environment presents an opportune time to invest in the sector as demand rises.
Consequently, the consumer goods market is projected to reach $2.80 trillion in 2024, with an expected CAGR of 1.2% from 2024 to 2029. Notably, the ever-evolving trends of the apparel sector benefit the consumer goods industry by driving online sales growth, influencing digital innovation, and enhancing customer experiences through personalized services, especially during the holidays now.
Further, the retail sector benefits from increased pet ownership, which has fueled demand for pet products and services. Retail innovations like auto-ship subscriptions and discounts are boosting sales, while growing interest in high-quality, health-focused pet foods is reshaping the market. The pet services market is projected to grow at a CAGR of 11.7%, reaching $63.96 billion by 2030.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Consumer Goods picks, beginning with the third choice.
Stock #3: Petco Health and Wellness Company, Inc. (WOOF)
WOOF operates as a health and wellness company, focusing on enhancing the lives of pets, pet parents, and its Petco partners in the United States, Mexico, and Puerto Rico. The company provides veterinary care, grooming, training, telehealth, Vital Care, and pet health insurance services, as well as veterinary services through Vetco mobile clinics.
In terms of the trailing-12-month asset turnover ratio, WOOF’s 1.17x is 19% higher than the industry average of 0.99x.
In the third quarter that ended November 2, 2024, WOOF’s total net sales grew 1.2% from the year-ago value to $1.51 billion. The company’s gross profit came in at $575.76 million, up 4.6% year-over-year. Furthermore, its adjusted EBITDA rose 12.6% from the prior year’s quarter to $81.24 million.
Analysts expect WOOF’s revenue for the quarter ending April 30, 2025, to increase 2% year-over-year to $1.56 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. WOOF’s stock has gained 100% over the past nine months to close the last trading session at $3.96.
WOOF’s robust outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Quality. Within the Consumer Goods industry, it is ranked #16 out of 55 stocks. To access WOOF’s grades for Value, Momentum, Stability, and Sentiment, click here.
Stock #2: Chewy, Inc. (CHWY)
CHWY engages in the pure-play e-commerce business in the United States. It provides pet food, treats, pet supplies, pet medications, and other pet health products, as well as pet services for dogs, cats, fish, birds, small pets, horses, and reptiles through its retail websites and mobile applications.
In terms of the trailing-12-month Return on Common Equity, CHWY’s 130.34% is considerably higher than the 11.03% industry average. Its 13.59% trailing-12-month Return on Total Assets is 245.2% higher than the 3.94% industry average. Additionally, its 3.88x trailing-12-month asset turnover ratio is 298.8% higher than the 0.99x industry average.
CHWY’s net sales for the third quarter ended October 27, 2024, increased 4.8% year-over-year to $2.88 billion. The company’s gross profit rose 7.9% compared to the prior-year quarter, reaching $843.87 million. Additionally, its adjusted net income and adjusted EPS increased 33.8% and 33.3%, respectively, from the year-ago values, to $84.92 million and $0.20.
For the quarter ending January 31, 2025, CHWY’s EPS is expected to grow 10.4% year-over-year to $0.20. Its revenue for the same quarter is expected to rise 12.8% year-over-year to $3.19 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 90.1% to close the last trading session at $33.72.
CHWY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Quality. It is ranked #13 in the same industry. To see CHWY’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
Stock #1: Levi Strauss & Co. (LEVI)
LEVI designs, markets, and sells apparel and related accessories for men, women, and children worldwide. The company offers jeans, casual and dress pants, activewear, tops, shorts, skirts, dresses, jumpsuits, shirts, sweaters, jackets, footwear, and related accessories under the Levi's, Dockers, Signature by Levi Strauss & Co., Denizen, and Beyond Yoga brands.
On October 11, 2024, LEVI’s Beyond Yoga launched Club Beyond, a weeklong pop-up in New York City featuring fitness classes, wellness workshops, exclusive retail, and customization experiences. The event aims to expand its customer base, deepen engagement, and highlight the brand's pillars: mind, body, and connection.
In terms of the trailing-12-month EBIT margin, LEVI’s 9.36% is 16.5% higher than the 8.03% industry average. Likewise, its 9.98% trailing-12-month levered FCF margin is 124.1% higher than the 4.45% industry average. Furthermore, the stock’s 8.82% trailing-12-month Return on Total Capital is 41.8% higher than the 6.22% industry average.
During the fiscal third quarter that ended August 25, 2024, LEVI’s net revenues increased marginally year-over-year to $1.52 billion. Similarly, its operating income stood at $30.30 million. For the same period, the company’s adjusted EBITDA rose 25.6% from the year-ago value to $225.30 million.
Street expects LEVI’s EPS and revenue for the quarter ending November 30, 2024, to increase 9.2% and 5.2% year-over-year to $0.48 and $1.74 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. LEVI’s stock has gained 12.9% over the past year to close the last trading session at $17.39.
LEVI’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #2 in the Consumer Goods industry. Beyond what we stated above, we also have given LEVI grades for Value, Momentum, and Stability. Get all the LEVI’s ratings here.
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CHWY shares were trading at $34.77 per share on Monday afternoon, up $1.05 (+3.11%). Year-to-date, CHWY has gained 47.14%, versus a 26.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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