3 Retail Stocks to Watch as Back-to-School Spending Ramps Up

The back-to-school shopping season, the second-largest retail event, is anticipated to see a significant increase in per-household spending, with parents expecting to spend an average of $1,230 this year, a notable rise from the $874.68 recorded in 2024, despite overall spending having declined from 2023's record high. This trend highlights potential opportunities for select retailers. Walmart is positioned as a resilient leader for non-discretionary spending, while DICK'S Sporting Goods benefits from its omnichannel strategy and future Foot Locker acquisition, and Target, an undervalued contrarian pick, presents potential upside driven by tariff resolution and C-suite changes.

Analysis

The upcoming back-to-school retail season is poised for a significant shift in consumer behavior, with projected per-household spending expected to rise to an average of $1,230, a substantial increase from the $874.68 spent in 2024. This trend provides a distinct backdrop for evaluating key retailers. Walmart (WMT) is positioned as a resilient leader, benefiting from consumers seeking low prices for non-discretionary goods, supported by a 39% total return over the last year and a consensus price target implying an 11% upside. However, its premium valuation, reflected in a 40.95 P/E ratio, and modest full-year EPS guidance for 2026 of $2.50 to $2.60 warrant consideration. In contrast, DICK'S Sporting Goods (DKS) targets the athletic equipment segment of back-to-school spending, leveraging a strong omnichannel strategy and the future growth catalyst of its Foot Locker acquisition, which is slated to close in the second half of 2025. While DKS stock is trading near its consensus price target, several analysts see further upside, with one target reaching $240. Target (TGT) emerges as a contrarian play, characterized by significant underperformance, including a negative 1.4% total return over the past five years. Potential catalysts for this undervalued stock (11x earnings) include a more favorable than expected 20% tariff on Vietnamese imports and a potential CEO change, which could signal a strategic shift.

Key Decisions for Investors

• Investors may consider Walmart (WMT) for its defensive qualities and reliable dividend growth, but should weigh these against the stock's premium valuation and modest near-term earnings projections.
• DICK'S Sporting Goods (DKS) offers a growth-focused opportunity based on its strong omnichannel model and the strategic upside from the future Foot Locker acquisition, making it attractive for those looking beyond current valuations.
• Target (TGT) represents a high-risk, value-oriented proposition where potential upside is contingent on catalysts like tariff resolutions and management changes materializing to reverse its long-term underperformance.
• Given that retailer earnings are not due until late August or early September, it is prudent to monitor these releases for the first official data on back-to-school spending trends before increasing exposure to the sector.