3 Resilient Retail Stocks That Are Still Growing Amid Tariffs

Despite tariff risks impacting the retail sector, Walmart reported a 4% sales increase (excluding foreign exchange) and a 4% rise in operating income, benefiting from its strong grocery segment; Costco Wholesale saw comparable revenue growth of 8% and a 13% increase in net income, though tariffs have increased costs and its valuation is considered high. Dick's Sporting Goods reported a 4.5% increase in same-store sales for the fifth consecutive quarter and is acquiring Foot Locker for $2.4 billion, despite an 11% decline in net income; its stock is down 20% this year but may represent a value buy at 13 times trailing earnings.

Analysis

The retail sector faces significant headwinds from tariff risks, which can substantially increase operational costs and pressure profit margins, forcing businesses to either absorb costs or pass them to consumers. Despite this challenging environment, several major retailers have demonstrated resilience. Walmart (WMT) reported a 4% increase in sales (excluding foreign exchange effects) to $165.6 billion and a more than 4% rise in operating income to $7.1 billion in its latest quarter, for the period ending April 30. This strength is largely attributed to its substantial grocery operations, which constitute approximately 60% of sales and are less susceptible to discretionary spending cuts. However, Walmart's stock trades at a high multiple of over 41 times trailing earnings. Costco Wholesale (COST) also posted robust figures for the period ending May 11, with comparable revenue growth of 8% and a 13% increase in net income to $1.9 billion on total revenue of $63.2 billion, although the company acknowledged that tariffs have led to increased costs and subsequent price hikes. Costco's valuation is notably elevated at 57 times trailing earnings, raising concerns about its sustainability should economic conditions deteriorate and consumers reduce bulk purchases. In contrast, Dick's Sporting Goods (DKS) has shown surprising strength in discretionary spending, with same-store sales growing 4.5% for the fifth consecutive quarter in the period ending May 3, and it is pursuing a $2.4 billion acquisition of Foot Locker. Despite this top-line momentum on net sales of $3.2 billion, Dick's experienced an 11% decline in net income to $264 million and its stock has fallen over 20% year-to-date amid macroeconomic concerns, but it trades at a more modest 13 times trailing earnings, suggesting potential value.

Key Decisions for Investors

• Investors might consider Walmart for its demonstrated resilience and stable grocery-driven revenue, but should be mindful of its premium valuation at over 41 times trailing earnings and that it was not among a recent 'top 10' list by one analyst team.
• Extreme caution is warranted with Costco Wholesale due to its very high valuation of 57 times trailing earnings, which may face pressure if consumer spending habits shift negatively due to economic conditions, despite its strong recent growth and 13% net income increase.
• Dick's Sporting Goods could present a value-oriented opportunity for long-term investors, given its consistent same-store sales growth, strategic acquisition plans, and a relatively low valuation of 13 times trailing earnings, though the recent 11% net income decline and significant stock underperformance this year require careful monitoring.
• Across the retail sector, investors should meticulously scrutinize valuations, individual company strategies for mitigating tariff impacts, and adaptability to evolving consumer behavior, particularly in discretionary categories which may be more sensitive to economic downturns.