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Pick These 4 Stocks From the Flourishing Retail-Miscellaneous Industry
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The Zacks Retail – Miscellaneous industry participants have been focusing on superior product strategy, advancement of omni-channel capabilities, and prudent capital investments to strike the right chord with consumers. Tractor Supply Company (TSCO - Free Report) , Ulta Beauty, Inc. (ULTA - Free Report) , Five Below, Inc. (FIVE - Free Report) and DICK'S Sporting Goods, Inc. (DKS - Free Report) look well poised, courtesy of a strategic review of their business operating model, growth prospects and cost structure.
However, players in the industry have been witnessing high costs associated with operations amid the coronavirus crisis. Also, pandemic-led local limitations and capacity constraints remain concerns.
About the Industry
The Zacks Retail – Miscellaneous industry covers retailers of sporting goods, office supplies, and specialty products as well as sellers of a wide range of domestic merchandise. It also includes retailers of beauty products providing cosmetics, fragrances, skincare and haircare products, and salon styling tools. Some of the industry participants operate rural lifestyle retail stores, arts and crafts specialty outlets, and sell their products to recreational farmers, ranchers, and others, as well as tradesmen and small businesses. The industry also comprises recreational boat and yacht retailer as well as specialty value retailers offering a broad range of trend-right, high-quality merchandise targeted at the tween and teen customer. The profitability of the players is dependent on prudent pricing model, well-organized supply chain and effective merchandising strategy.
4 Trends Shaping the Retail - Miscellaneous Industry's Future
Consumers’ Willingness to Spend: The industry’s prospects are correlated with the purchasing power of consumers. Stimulus package, mass inoculation and relaxation in government restrictions have been stimulating demand. We note that record household savings coupled with payments under the Child Tax Credit program to qualifying families from July through December is likely to boost consumer spending. Clearly, demand is not restricted to a few categories as was noticed when the coronavirus crisis gripped the economy. Also, industry experts believe that companies have been resorting to location analytics and other data-driven tools to better engage with customers amid the ongoing crisis.
Focus on Boosting Portfolio & Market Reach: Most companies in the space are working on providing a wide assortment of products, enhancing online experience and adopting a favorable pricing strategy to boost sales. Initiatives such as building omni-channel operations, coming up with reward programs, and developing innovative products and services are worth mentioning. Of late, there has been an increase in demand for office supplies, personal care items, domestic merchandise products and fitness-related products, among others. Companies are looking to fuel sales via targeted marketing. Additionally, the pandemic served as an opportunity for companies to broaden brand lines and launch products with improved features.
Digitization Key to Growth: With the change in consumer shopping pattern and behavior, industry participants have been playing dual in-store and online roles. In this respect, the industry players have been directing resources toward digital platforms, accelerating fleet optimization and augmenting supply chain. In fact, companies’ initiatives to expand delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions have been a boon amid the pandemic. Additionally, retailers are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. The outbreak has rapidly changed the convenience of digitization into a necessity, and companies have been taking every step to capitalize on that demand. Keeping in mind consumers’ product preferences and growing inclination toward online shopping, retailers are replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Focus on Margins: Companies in the industry are vying for a bigger share on attributes such as price, products and speed to market. They have been accelerating investments to strengthen digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might build pressure on margins. Meanwhile, the impact of additional employee payments and benefits along with investments undertaken to preserve safety and health of customers and team members amid the coronavirus crisis cannot be ruled out. Continued rise in such costs is likely to keep building pressure on the company’s margins.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Retail – Miscellaneous industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #76, which places it in the top 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming more confident on this group’s earnings growth potential. Since the beginning of March, the industry’s earnings estimate for the current year has improved 9.1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Vs Broader Market
The Zacks Retail – Miscellaneous industry has outperformed the broader Retail – Wholesale sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has gained 10.9% over this period compared with the S&P 500’s rise of 32.1%. Meanwhile, the broader sector has declined 4.2% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 18.06X compared with the S&P 500’s 21.67X and the sector’s 27.81X.
Over the last five years, the industry has traded as high as 24.96X, as low as 11.28X and at the median of 16.46X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Retail - Miscellaneous Stocks Worth Buying
DICK'S Sporting Goods: Favorable customer demand, a solid product portfolio and strength in the online platform have been contributing to the company’s upbeat performance. The company has been capitalizing on the favorable shifts in consumer demand across golf, outdoor activities, home fitness and active lifestyle. Notably, the company has been undertaking technology enhancements to provide customers with seamless omni-channel experience. The company anticipates net sales between $11,520 million and $11,720 million and consolidated same store sales growth in the band of 18-20% for fiscal 2021. Impressively, shares of this sporting goods retailer have gained approximately 76.7% in the past six months. The Zacks Consensus Estimate for the company’s current-fiscal EPS has moved up 1.3% in the past seven days. This Zacks Rank #1 (Strong Buy) company has a trailing four-quarter earnings surprise of 117.4%, on average, and an estimated long-term earnings growth rate of 7.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: DKS
Tractor Supply Company: The company seems well poised for growth, thanks to its robust business strategies. The company’s “Life Out Here” and “ONETractor” strategies are worth a mention. Moreover, its omni-channel initiatives, including curbside pickup and same day delivery, bode well. Strength in everyday merchandise, including consumable, usable and edible products as well as robust demand for spring and summer seasonal categories have been fueling comparable store sales. The company expects net sales between $12.1 billion and $12.3 billion and comparable store sales to increase in the range of 11-13% for fiscal 2021. This largest rural lifestyle retailer in the United States has a trailing four-quarter earnings surprise of 22.6%, on average, and an estimated long-term earnings growth rate of 9.7%. The Zacks Consensus Estimate for its current-fiscal EPS has risen 1.2% over the past 30 days. Shares of this Zacks Rank #2 (Buy) company have risen 20.2% in the past six months.
Price and Consensus: TSCO
Ulta Beauty: The company has been strengthening its omni-channel business and exploring the potential of both physical and digital facets. It has been undertaking various tools to enhance experience of guests, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. The company concentrates on offering customers a curated and exclusive range of beauty products through innovation. The company envisions net sales between $8.1 billion and $8.3 billion and comparable sales growth in the band of 30-32% for fiscal 2021. Impressively, this beauty retailer and the premier beauty destination for cosmetics, fragrance, skin care products, hair care products and salon services has a trailing four-quarter earnings surprise of 63.9%, on average, and an estimated long-term earnings growth rate of 16.5%. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up 1.1% in the past seven days. We also note that shares of this Zacks Rank #2 company have risen 15.6% in the past six months.
Price and Consensus: ULTA
Five Below: The company’s focus on providing trend-right products, improving supply chain, strengthening digital capabilities and delivering better WOW products bode well. The company has been working on digitizing vendor transactions, implementing core merchandizing platform and rolling out cloud-based data and analytics platform to analyze demand, and accordingly manage inventory. To make shopping convenient, it is expanding self-checkout capabilities. The company recently extended its partnership with Instacart to bring expedited same-day delivery to more of its outlets. This extreme-value retailer for tweens and teens has a trailing four-quarter earnings surprise of 96.1%, on average, and an estimated long-term earnings growth rate of 32.5%. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up 1.1% in the past seven days. Shares of this Zacks Rank #2 company have rallied 21.8% in the past six months.
Price and Consensus: FIVE
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Pick These 4 Stocks From the Flourishing Retail-Miscellaneous Industry
The Zacks Retail – Miscellaneous industry participants have been focusing on superior product strategy, advancement of omni-channel capabilities, and prudent capital investments to strike the right chord with consumers. Tractor Supply Company (TSCO - Free Report) , Ulta Beauty, Inc. (ULTA - Free Report) , Five Below, Inc. (FIVE - Free Report) and DICK'S Sporting Goods, Inc. (DKS - Free Report) look well poised, courtesy of a strategic review of their business operating model, growth prospects and cost structure.
However, players in the industry have been witnessing high costs associated with operations amid the coronavirus crisis. Also, pandemic-led local limitations and capacity constraints remain concerns.
About the Industry
The Zacks Retail – Miscellaneous industry covers retailers of sporting goods, office supplies, and specialty products as well as sellers of a wide range of domestic merchandise. It also includes retailers of beauty products providing cosmetics, fragrances, skincare and haircare products, and salon styling tools. Some of the industry participants operate rural lifestyle retail stores, arts and crafts specialty outlets, and sell their products to recreational farmers, ranchers, and others, as well as tradesmen and small businesses. The industry also comprises recreational boat and yacht retailer as well as specialty value retailers offering a broad range of trend-right, high-quality merchandise targeted at the tween and teen customer. The profitability of the players is dependent on prudent pricing model, well-organized supply chain and effective merchandising strategy.
4 Trends Shaping the Retail - Miscellaneous Industry's Future
Consumers’ Willingness to Spend: The industry’s prospects are correlated with the purchasing power of consumers. Stimulus package, mass inoculation and relaxation in government restrictions have been stimulating demand. We note that record household savings coupled with payments under the Child Tax Credit program to qualifying families from July through December is likely to boost consumer spending. Clearly, demand is not restricted to a few categories as was noticed when the coronavirus crisis gripped the economy. Also, industry experts believe that companies have been resorting to location analytics and other data-driven tools to better engage with customers amid the ongoing crisis.
Focus on Boosting Portfolio & Market Reach: Most companies in the space are working on providing a wide assortment of products, enhancing online experience and adopting a favorable pricing strategy to boost sales. Initiatives such as building omni-channel operations, coming up with reward programs, and developing innovative products and services are worth mentioning. Of late, there has been an increase in demand for office supplies, personal care items, domestic merchandise products and fitness-related products, among others. Companies are looking to fuel sales via targeted marketing. Additionally, the pandemic served as an opportunity for companies to broaden brand lines and launch products with improved features.
Digitization Key to Growth: With the change in consumer shopping pattern and behavior, industry participants have been playing dual in-store and online roles. In this respect, the industry players have been directing resources toward digital platforms, accelerating fleet optimization and augmenting supply chain. In fact, companies’ initiatives to expand delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions have been a boon amid the pandemic. Additionally, retailers are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. The outbreak has rapidly changed the convenience of digitization into a necessity, and companies have been taking every step to capitalize on that demand. Keeping in mind consumers’ product preferences and growing inclination toward online shopping, retailers are replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Focus on Margins: Companies in the industry are vying for a bigger share on attributes such as price, products and speed to market. They have been accelerating investments to strengthen digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might build pressure on margins. Meanwhile, the impact of additional employee payments and benefits along with investments undertaken to preserve safety and health of customers and team members amid the coronavirus crisis cannot be ruled out. Continued rise in such costs is likely to keep building pressure on the company’s margins.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Retail – Miscellaneous industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #76, which places it in the top 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming more confident on this group’s earnings growth potential. Since the beginning of March, the industry’s earnings estimate for the current year has improved 9.1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Vs Broader Market
The Zacks Retail – Miscellaneous industry has outperformed the broader Retail – Wholesale sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has gained 10.9% over this period compared with the S&P 500’s rise of 32.1%. Meanwhile, the broader sector has declined 4.2% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 18.06X compared with the S&P 500’s 21.67X and the sector’s 27.81X.
Over the last five years, the industry has traded as high as 24.96X, as low as 11.28X and at the median of 16.46X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Retail - Miscellaneous Stocks Worth Buying
DICK'S Sporting Goods: Favorable customer demand, a solid product portfolio and strength in the online platform have been contributing to the company’s upbeat performance. The company has been capitalizing on the favorable shifts in consumer demand across golf, outdoor activities, home fitness and active lifestyle. Notably, the company has been undertaking technology enhancements to provide customers with seamless omni-channel experience. The company anticipates net sales between $11,520 million and $11,720 million and consolidated same store sales growth in the band of 18-20% for fiscal 2021. Impressively, shares of this sporting goods retailer have gained approximately 76.7% in the past six months. The Zacks Consensus Estimate for the company’s current-fiscal EPS has moved up 1.3% in the past seven days. This Zacks Rank #1 (Strong Buy) company has a trailing four-quarter earnings surprise of 117.4%, on average, and an estimated long-term earnings growth rate of 7.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: DKS
Tractor Supply Company: The company seems well poised for growth, thanks to its robust business strategies. The company’s “Life Out Here” and “ONETractor” strategies are worth a mention. Moreover, its omni-channel initiatives, including curbside pickup and same day delivery, bode well. Strength in everyday merchandise, including consumable, usable and edible products as well as robust demand for spring and summer seasonal categories have been fueling comparable store sales. The company expects net sales between $12.1 billion and $12.3 billion and comparable store sales to increase in the range of 11-13% for fiscal 2021. This largest rural lifestyle retailer in the United States has a trailing four-quarter earnings surprise of 22.6%, on average, and an estimated long-term earnings growth rate of 9.7%. The Zacks Consensus Estimate for its current-fiscal EPS has risen 1.2% over the past 30 days. Shares of this Zacks Rank #2 (Buy) company have risen 20.2% in the past six months.
Price and Consensus: TSCO
Ulta Beauty: The company has been strengthening its omni-channel business and exploring the potential of both physical and digital facets. It has been undertaking various tools to enhance experience of guests, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. The company concentrates on offering customers a curated and exclusive range of beauty products through innovation. The company envisions net sales between $8.1 billion and $8.3 billion and comparable sales growth in the band of 30-32% for fiscal 2021. Impressively, this beauty retailer and the premier beauty destination for cosmetics, fragrance, skin care products, hair care products and salon services has a trailing four-quarter earnings surprise of 63.9%, on average, and an estimated long-term earnings growth rate of 16.5%. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up 1.1% in the past seven days. We also note that shares of this Zacks Rank #2 company have risen 15.6% in the past six months.
Price and Consensus: ULTA
Five Below: The company’s focus on providing trend-right products, improving supply chain, strengthening digital capabilities and delivering better WOW products bode well. The company has been working on digitizing vendor transactions, implementing core merchandizing platform and rolling out cloud-based data and analytics platform to analyze demand, and accordingly manage inventory. To make shopping convenient, it is expanding self-checkout capabilities. The company recently extended its partnership with Instacart to bring expedited same-day delivery to more of its outlets. This extreme-value retailer for tweens and teens has a trailing four-quarter earnings surprise of 96.1%, on average, and an estimated long-term earnings growth rate of 32.5%. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up 1.1% in the past seven days. Shares of this Zacks Rank #2 company have rallied 21.8% in the past six months.
Price and Consensus: FIVE