In this article, we will look at the 10 Best Department Store Stocks to Invest in.

Is the American Consumer Cracking?

Consumer sentiment is taking a hit in the US, with threats of a potential recession looming across the market. Company leaders, ranging from affordable grocery stores to luxury goods sellers, are noticing cracks in demand, which reflects a notable trend shift from the resilient consumers who supported the US economy for years, even during elongated periods of inflation. On March 14, CNBC reported that while headwinds like persistent inflation and high interest rates were already affecting companies, they now have to deal with additional obstacles such as worsening consumer sentiment, tariffs that go on and off, and mass government layoffs.

Over the last weeks, investor presentations and earnings calls have shown a distinct trend: consumer-facing businesses and retailers are warning that fiscal Q1 2025 sales are coming in softer than expected. 2025 may prove to be a year tougher than what analysts initially estimated.

CNBC reported that several executives opined that a “dynamic” macroenvironment and unseasonably cool weather were the culprits behind this trend. However, with President Trump’s second term continuing to unfold, new challenges are beginning to emerge. Trade policies reflect inherent uncertainty, as they seem to shift by the hour. Experts and economists anticipate that the effects of new tariffs on Chinese, Canadian, and Mexican goods will be felt across the economy, elevating prices for consumers and hampering spending in an environment where inflation is already higher than the Fed’s target.

Consumer confidence reports, which show how much money shoppers are spending to gauge their patterns, corroborate these claims. According to CNBC, consumer confidence in February showed its biggest drop since 2021. Another consumer sentiment measure for March showed even worse results. The University of Michigan Survey of Consumers for March posted a 57.9 reading, down 10.5% from February levels and standing below the Dow Jones consensus estimate of 63.2. In addition, the one-year inflation outlook rose to 4.9%, the highest reading since November 2022. The outlook at the five-year horizon also bubbled to 3.9%, the highest since February 1993.

READ ALSO: 12 Best Household Stocks to Buy According to Hedge Funds and 12 Best Diagnostics Stocks to Invest In Right Now. 

Could the US be on the Path to Recession?

Similarly, the strong US job market is also showing early signs of stress, with unemployment rising and job growth slowing. These trends have greatly affected the previously red-hot stock market, with fears surrounding a potential recession emerging. CNBC reported that executives and investors are concerned about the impact of Trump’s tariffs on consumer spending, leading to additional worries about an administration from which they previously had optimistic hopes. While the weak companies are already taking on a cautious approach, even the strong ones are jumping on the bandwagon and preparing for an uncertain future.

Ed Stack, chairman of Dick’s Sporting Goods, expressed similar sentiments in a CNBC interview, saying:

“I do think it’s just a bit of an uncertain world out there right now. What’s going to happen from a tariff standpoint? You know, if tariffs are put in place and prices rise the way that they might, what’s going to happen with the consumer?”

Several companies in the sector managed to surpass S&P 500 performance in the past year, even during a decrease in discretionary spending. Therefore, the current shift presents a notable industry point and might be a warning sign that consumers are beginning to crack. Even excellent execution may not be able to shield companies from tariff-induced price rises after four years of historic inflation. On the other hand, companies who already spent last year dealing with uncertain consumer trends and dynamics are sounding even more skeptical.

Dollar General CEO Todd Vasos discussed the ongoing situation in the company’s fiscal Q4 2024 earnings call, adding that customers are expecting value and convenience “more than ever.”

“Our customers continue to report that their financial situation has worsened over the last year, as they have been negatively impacted by ongoing inflation,” he said. “Many of our customers report they only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities. As we enter 2025, we are not anticipating an improvement in the macro environment, particularly for our core customer.”

American Eagle CEO Jay Schottenstein also shed light on the situation in the following words:

″[Consumers] have the fear of the unknown. Not just tariffs, not just inflation, we see the government cutting people off. They don’t know how that’s going to affect them. They see programs being cut, they don’t know how that’s going to affect them. And when people don’t know what they don’t know – they get very conservative … it makes everyone a little nervous.”

With these trends in view, let’s look at the 10 best department store stocks to invest in.

Our Methodology

We sifted through stock screeners, financial media reports, and ETFs to compile a list of 20 department store stocks. We then selected the top 10 stocks that were the most popular among hedge funds, as of Q4 2024, and ranked them in ascending order. We sourced the hedge fund sentiment data from Insider Monkey’s database.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

10 Best Department Store Stocks to Invest in

10. Macy’s, Inc. (NYSE:M)

Number of Hedge Fund Holders: 42

Macy’s Inc. (NYSE:M) is an omnichannel retail store that manages three brands: Macy’s, Bloomingdale’s, and Bluemercury. These brands sell a variety of merchandise, including accessories, apparel, consumer goods, home furnishings, and more. The company operates stores in 43 US states, The District of Columbia, Guam, and Puerto Rico.

Fiscal Q4 2024 marked the fourth consecutive quarter of positive comps for Macy’s, Inc.’s (NYSE:M) First 50 locations. The company is bouncing back, as Bloomingdale’s returned to positive annual comps, and Bluemercury reported four consecutive years of positive comps. Macy’s, Inc. (NYSE:M) also achieved record annual net promotor store at Bloomingdale’s and Macy’s,  rising 90 basis points and 160 basis points, respectively.

The company is also streamlining its operations, closing 64 of around 150 non-go-forward Macy’s stores ahead of its annual plan of 50 closures. It slashed CapEx by $111 million to $882 million, representing the second consecutive year of reduced spend, and generated $679 million of free cash, up 71% from last year. Management is confident about its strategic shifts and investments and plans to continue this growth momentum into the future.

9. BJ’s Wholesale Club Holdings (NYSE:BJ)

Number of Hedge Fund Holders: 43

BJ’s Wholesale Club Holdings (NYSE:BJ) is a membership-only warehouse chain offering an elaborate assortment of goods. These include a wide range of items, including groceries and general merchandise and services. The company also offers specialty services and operates approximately 244 clubs and 175 gas locations across 20 states.

Fiscal year 2024 was a positive year for the company, marked by record net sales, membership, and adjusted earnings per share. Membership is the cornerstone of BJ’s Wholesale Club Holdings’s (NYSE:BJ) business, and fiscal 2024 marked another record membership year, with full-year membership fee income increasing by 8.5% and renewal rate remaining strong at 90%. Membership is thus at an all-time high for the company, above 7.5 million members. Its merchandising initiatives and digital conveniences are driving greater member engagement.

On March 7, Loop Capital analyst Laura Champine raised the firm’s price target on BJ’s Wholesale Club Holdings (NYSE:BJ) to $110 from $95, keeping a Hold rating on the shares. The analyst told investors in a research note that the company’s better-than-expected Q4 results, with 5% comps growth exceeding the 3% estimate, cast a positive light on it. Since consumers are value-oriented due to grocery inflation, BJ’s Wholesale Club Holdings (NYSE:BJ) stands to benefit from the trend. The company takes the ninth spot on our list of the best department store stocks to invest in.