Summer’s ending and school is right around the corner. From elementary entrants to grad students, learners of all ages and types are ready to hit the books and call an end to summer break.
These students, and their parents, are facing a much different economy than expected this time last year. Good news for investors, though – the surprise soft landing is ripe for substantial back-to-school spending.
Economic indicators alone imply a market ready for a back-to-school spending spree. Inflation’s cooled, although still a bit off the Fed’s target. Reduced gas and grocery prices over the past year mean families aren’t forced to buy bargain school supplies.
Underlining this point, the Consumer Confidence Index rebounded sharply since 2022’s lows.
We’re at the beginning of an imminent house-holder spending spree that won’t be matched until the holiday season, and these seven companies stand to benefit most.
Target (NYSE:TGT) is arguably the king of back-to-school shopping.
Target’s stock took a beating this year, losing around 12% since January and nearly 50% below its all-time high.
Much of the stock suppression is due to recent economic conditions, as household spending dropped. Likewise, Target’s net income fell from $6.95 billion to $2.72 billion between 2022 and 2023.
Still, the company’s inventory turnover ratio remained consistent over the past five years. This consistency shows that management can accurately forecast and manage their stock to meet consumer demand without high inventory costs.
Target’s usually the go-to company stock for back-to-school shopping, and the company should be high on investors’ radar this year.
Walmart (NYSE:WMT) is another obvious back-to-school shopping stock play. Because of its discount-driven sales model, the stock fared better over the past year than its primary competitor, Target.
The company’s digital sales model also expanded heavily post-pandemic, and investments in their Walmart+ app and distribution network are paying off.
The company’s earnings remained fairly stable throughout recent economic turbulence. Walmart reported a whopping $11.68 billion income in 2023, only a 14% drop from 2022. Its inventory turnover ratio, 8.20, also remained on par with its historical levels.
Walmart also positions itself as inflation-friendly, announcing that all school supplies will be sold at last year’s prices.
This move will undoubtedly attract price-conscious consumers and steal customers from pricier providers. Combine the cut-rate pricing with a widespread surge in consumer spending, and Walmart is a no-brainer back-to-school stock.
Logitech (NASDAQ:LOGI) is a strong back-to-school stock, as an increasingly digitized classroom demands the peripherals Logitech offers. The company is also in a great financial position, beating analyst forecasts during July’s quarterly earnings report.
Logitech’s Chief Financial Officer, Chuck Boynton, specifically pointed to the company’s adaptation to changing conditions as key to its recent success. Specifically, the company increased efficiency across its warehouse and retail distribution chains.
Logitech is targeting a sales stat of around $4 billion for the year, and the company’s overall outlook improved.
“We entered the year with a lot of uncertainty and volatility, and in the last quarter we published quite good numbers relative to expectations,” he said.
But Logitech isn’t content to rest on its laurels and continues exploiting efficiencies to drive product sales and increase margins.
This year’s back-to-school shopping season will prove whether Logitech can keep up with its winning trend, but its outlook remains bright.
Apple (NASDAQ:AAPL) is everyone’s favorite stock this year as it became the first global company to hit a $1 trillion market cap. There’s little sign of slowing down, though, and Apple will get a boost from back-to-school shoppers replacing old computer equipment.
However, Apple’s global market makes it stand apart alongside domestic popularity compared to other US-centric back-to-school stocks.
Sales throughout India are booming; the country became one of Apple’s top five sales markets. Emerging market penetration is a difficult move to manage, particularly for pricier products like Apple, and this success points to a bright future for further geographic diversification.
Apple is also leaning on its subscription-based systems, which will likely get a back-to-school boost.
Notably, its iCloud service expanded rapidly throughout the past few years as digitized work and school environments demand greater computing storage and a need to simultaneously work across multiple hardware platforms.
While Apple’s current price is arguably overvalued, there’s also no denying the company is well-positioned to remain dominant. The upcoming school shopping season will demonstrate that for skeptical investors.
Office Depot (ODP)
Office Depot stock, alongside its obvious position as a back to school stock, also benefits investors seeking diversification between standard retail.
In 2022, Office Depot split its operational streams into its standard retail division (Office Depot), B2B contract sales (ODP Business Solutions), a managed supply chain (Veyer), and a B2B digital platform to facilitate buyer and supplier sales (Varis).
Broad diversification and delineation between revenue streams mean each can wholly focus on its core competencies. Before, management had to split attention and focus, trying to do everything at once.
Varis, in particular, is a substantial sales driver that provides a buffer to seasonal retail sales, including back-to-school shopping. Although fairly new, it’s headed up by former Amazon head Prentis Wilson.
Wilson brought his former employer more than $10 billion in annual sales within six years of rolling out the program at Amazon, and he’s ready to do the same for Office Depot.
He’s optimistic that 2023 will be the year Varis fully enters its market, as he expects “that this will be the peak year of investment for Varis as we ready the platform for launch, turn on the revenue flywheel and scale the business.”
We’ll have to wait to see whether Varis becomes the juggernaut Wilson expects but, in the meantime, the company’s back-to-school retail sales will help bridge the revenue gap.
Amazon (NASDAQ:AMZN) is another no-brainer back-to-school stock. The company’s dominant online position is the most accessible avenue for at-home shopping.
The digital retail giant’s recent retail sales remained somewhat flat, but this isn’t bad news. Instead, its 9% revenue increase, down from the previous year’s 17% jump, suggests the company can adapt to reduced spending in a tighter economy.
Amazon’s ongoing commitment to cloud services and AI for this school season. Cloud revenue alone is up 12%, further driving profit for its central Amazon Web Services division.
But, besides helping schools and students store and manage massive amounts of data, Amazon’s AI efforts make it a long-term, stable play for this market beyond back-to-school shopping.
As more and more companies develop proprietary AI platforms, and more consumers (including students) leverage the tools for everyday life, Amazon stands to profit.
Acknowledging the imminent profit boost, Amazon CEO Andrew Jassey told investors that, although they’re working on their own AI tools, “most will be built by other companies, and we’re optimistic that the largest number of these will be built on AWS.”
Positioning themselves for an AI revolution will help further diversify Amazon’s offerings. At the same time, Amazon’s ongoing retail dominance is top-of-mind for back-to-school shoppers.
Zoom (NASDAQ:ZM) is well off its mid-pandemic high, but digital classrooms still have a place in today’s landscape, and this software stock is ready for school to start.
Zoom is the undisputed leader in videoconferencing software, with over 50% of the total market share as of 2022. This is a boon to the stock, as software of this type tends to be sticky.
If a school or workplace picks Zoom as its primary provider, they’re hard-pressed to pivot and adapt to a new offering across its educational ecosystem.
Its basic sales model relies heavily on consumer adoption and word-of-mouth spread. But, today, Zoom is also expanding its enterprise sales team.
This means that, although Zoom is a go-to option for individuals, small companies, and some schools, sales reps will begin targeting giant corporations that are increasingly going remote.
There’s stiff competition at the enterprise level, but Zoom’s dominant position for students and casual users makes it an easy sell at scale.
On the date of publication, Jeremy Flint held no position in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.