The specialty retailer sector’s growth prospects look promising, given robust consumer spending, easing inflation, expectations of interest rate cuts, growing disposable incomes, and retailers’ adaptation to changing consumer preferences.
Given the industry’s bright prospects, fundamentally strong specialty retailer stocks Upbound Group, Inc. (UPBD), NEXT plc (NXGPY), and Betterware de México, S.A.P.I. de C.V. (BWMX) could be solid additions to your portfolio now.
Consumer spending continued to show a robust recovery as it rose 0.8% in February, the largest gain since January 2023. Retail sales grew 0.6% in February over the previous month, reflecting a favorable trend in consumer spending.
Moreover, consumers continue to feel confident, as evidenced by the US Consumer Sentiment Index’s biggest rise in nearly three years last month. The University of Michigan’s benchmark Consumer Sentiment Index rose to a final reading of 79.4 in March.
The National Retail Federation forecasts retail sales to increase by 2.5% to 3.5% in 2024, reaching $5.23 trillion to $5.28 trillion. NRF President and CEO Matthew Shay said, “The resiliency of consumers continues to power the American economy, and we are confident there will be moderate but steady growth through the end of the year.”
The global specialty retailers market is projected to grow at a CAGR of 4% to reach $42.70 billion by 2031. This growth will driven by increasing consumer demand for unique and high-quality products, as well as the rise of e-commerce platforms making specialty items more accessible to a broader audience.
Investors’ interest in retail stocks is evident from the SPDR S&P Retail ETF’s (XRT) 28.9% gains over the past six months.
With these favorable trends in mind, let’s delve into the fundamentals of the three Specialty Retailers stock picks, beginning with the third choice.
Stock #3: Upbound Group, Inc. (UPBD)
UPBD is an omni-channel platform company that engages in leasing household durable goods to customers on a lease-to-own basis in the United States, Puerto Rico, and Mexico. The company operates through four segments: Rent-A-Center Business, Acima, Mexico, and Franchising.
UPBD’s trailing-12-month gross profit margin of 50.65% is 41.2% higher than the 35.88% industry average. Its 33.79% trailing-12-month levered FCF margin is 508.9% higher than the 5.55% industry average. Also, its 1.46x trailing-12-month asset turnover ratio is 46.1% higher than the 1x industry average.
For the fourth quarter that ended December 31, 2023, UPBD reported a total revenue of $1.02 billion, up 2.8% year-over-year. Its Merchandise sales grew 7.6% year-over-year to $25.27 million. Its non-GAAP gross profit rose 3.5% from the year-ago value to $512.60 million.
Also, its non-GAAP net earnings and earnings per share came in at $45.19 million and $0.81, respectively.
Street expects UPBD's EPS for the quarter ending September 30, 2024, to increase 17.4% year-over-year to $0.93. Its revenue for the quarter ended March 31, 2024, is expected to increase 3.7% year-over-year to $1.05 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 42.8% to close the last trading session at $35.01.
UPBD's POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UPBD has a B grade for Growth, Sentiment, and Quality. Within the Specialty Retailers industry, it is ranked #8 out of 42 stocks. To see UPBD's additional ratings for Value, Momentum, and Stability, click here.
Stock #2: NEXT plc (NXGPY)
Headquartered in Enderby, the United Kingdom, NXGPY retails clothing, beauty, footwear, and home products internationally. The company operates through NEXT Retail, NEXT Online, NEXT Finance, Total Platform, Joules, Property Management, and International Retail, Sourcing, and Other segments.
NXGPY’s trailing-12-month EBIT margin of 17.87% is 134.7% higher than the industry average of 7.61%. Its trailing-12-month net income margin of 14.61% is 209.9% higher than the industry average of 4.72%. Its 16.98% trailing-12-month Return on Total Assets is 302.3% higher than the 4.22% industry average.
For the fiscal year, which ended January 31, 2024, NXGPY’s revenue increased 9.1% year-over-year to £5.49 billion ($6.90 billion), while its gross profit rose 11.3% from the year-ago value to £2.42 billion ($3.04 billion). The company’s operating profit was £987.90 million ($1.24 billion), up 4.9% from the previous year’s period.
Its profit for the year increased 12.6% year-over-year to £800.50 million ($1.01 billion). Also, its EPS came in at £655.9p, representing an increase of 15% year-over-year.
For the fiscal year ending January 31, 2025, NXGPY’s revenue is expected to increase 4.4% year-over-year to $7.21 billion. Over the past year, the stock has gained 43.6% to close the last trading session at $57.63.
NXGPY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Stability and Quality and a B for Momentum. Click here to see NXGPY's additional ratings for Growth, Value, and Sentiment.
Stock #1: Betterware de México, S.A.P.I. de C.V. (BWMX)
Headquartered in El Arenal, Mexico, BWMX operates as a direct-to-consumer company. It operates through two segments: The Home Organization Products (Betterware or BWM) and The Beauty and Personal Care Products (JAFRA).
BWMX’s trailing-12-month Return on Common Equity of 81.65% is 618.3% higher than the industry average of 11.37%. Its trailing-12-month Return on Total Capital of 20.16% is 232.4% higher than the industry average of 6.07%. Its 14.21% trailing-12-month levered FCF margin is 156% higher than the 5.55% industry average.
BWMX’s net revenue for the fourth quarter that ended December 31, 2023, increased 13.5% year-over-year to MXN3.40 billion ($205.09 million). Its gross profit increased 4.5% year-over-year to MXN2.38 billion ($143.48 million).
The company’s net income increased 62.5% year-over-year to MXN406.10 million ($24.48 million). Also, its EPS came in at MXN 10.9, representing an increase of 62.5% year-over-year.
Analysts expect BWMX’s revenue and EPS for the quarter ended March 31, 2024, to increase 13.5% and 71.5% year-over-year to $205.52 million and $0.57, respectively. Shares of BWMX have gained 63.9% over the past year to close the last trading session at $19.50.
It’s no surprise that BWMX has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Sentiment, and Quality and a B for Growth, Value, and Momentum. It is ranked first in the Specialty Retailers industry. Beyond what is stated above, we’ve also rated BWMX for Stability. Get all BWMX ratings here.
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NXGPY shares were trading at $57.63 per share on Tuesday morning, down $3.58 (-5.84%). Year-to-date, NXGPY has gained 9.44%, versus a 9.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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