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4 Retail-Miscellaneous Stocks With Potential to Beat Industry Blues
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As stimulus-driven spending gradually wanes and interest rates remain elevated, the Retail – Miscellaneous industry finds itself at a pivotal juncture. Consumers are adopting a more cautious stance toward their disposable income, signaling a return to more conservative spending habits. This shift in consumer sentiment is reverberating across various merchandise categories, creating challenges for businesses.
Nonetheless, the industry participants are proactively addressing the changing consumer environment by emphasizing a superior product strategy, enhancing their omnichannel capabilities and making prudent capital investments. Backed by these initiatives, companies such as Ulta Beauty, Inc. (ULTA - Free Report) , Five Below, Inc. (FIVE - Free Report) , Arhaus, Inc. (ARHS - Free Report) and Sally Beauty Holdings, Inc. (SBH - Free Report) are well-positioned to seize opportunities that may arise in this changed marketplace.
About the Industry
The Zacks Retail – Miscellaneous industry covers retailers of sporting goods, office supplies and specialty products and 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, and art and craft specialty outlets and sell their products to farmers, ranchers and others, as well as tradesmen and small businesses. The industry also comprises recreational boat and yacht retailers and specialty value retailers offering a broad range of trend-right, high-quality merchandise targeted at tween and teen customers. The players' profitability depends on a prudent pricing model, a well-organized supply chain and an effective merchandising strategy.
4 Key Industry Trends
Cautious Consumer Environment: The industry grapples with a complex set of challenges, as a soft demand environment casts a shadow on overall sales and revenue prospects. Consumers are contending with a host of economic issues, encompassing high inflation, elevated interest rates and geopolitical tension. This economic landscape prompts shifts in consumer behavior, potentially altering purchasing patterns across various retail segments.
Pressure on Margins to Linger: 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 the digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, any deleverage in the SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might build pressure on margins. Nonetheless, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and adopting effective pricing policies.
Focus on Boosting Portfolio & Market Reach: Most companies in the space are working on providing a wide assortment of products, enhancing the online experience and adopting a favorable pricing strategy to boost sales. Initiatives such as building omnichannel operations, coming up with reward programs and developing innovative products and services are worth mentioning. There has been an increase in demand for personal care items, domestic merchandise products and fitness-related products. Companies are looking to fuel sales via targeted marketing.
Digitization, Key to Growth: With the change in consumer shopping patterns 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 the supply chain. Companies’ initiatives to expand delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions have been a boon. Additionally, retailers are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind consumers’ product preferences and inclination toward online shopping, retailers are replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Retail – Miscellaneous industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #197, which places it in the bottom 22% 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 drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since the beginning of July 2023, the industry’s earnings estimate has declined 17.9%.
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 underperformed the broader Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has declined 7.3% over this period. Meanwhile, the S&P 500 has risen 20.3%, and the broader sector has increased 16.8% 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 16.2X compared with the S&P 500’s 20.31X and the sector’s 22.4X.
Over the last five years, the industry has traded as high as 23.93X, as low as 11.14X and at the median of 16.61X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Stocks to Watch
Sally Beauty: The successful execution of strategic initiatives, including customer engagement, brand penetration and innovative concepts, showcases management's commitment to long-term value creation. With strong free cash flow, strategic acquisitions and a focus on optimizing operations, Sally Beauty is poised for sustained growth. The introduction of concepts like Studio by Sally, Cosmo Prof Direct and Happy Beauty Company represents a commitment to innovation and diversification beyond core offerings.
Sally Beauty has a trailing four-quarter earnings surprise of 2.1%, on average. The Zacks Consensus Estimate for current financial-year EPS suggests growth of 2.7% from the year-ago reported figure. Shares of this Zacks Rank #2 (Buy) company have declined 21.6% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: SBH
Ulta Beauty: The company has been strengthening its omnichannel business and exploring the potential of both physical and digital facets. It has been implementing various tools to enhance guests' experience, like offering a virtual try-on tool and in-store education and reimagining fixtures, among others. Ulta Beauty focuses on offering customers a curated and exclusive range of beauty products through innovation.
This beauty retailer and a premier beauty destination for cosmetics, fragrance, skincare products, hair care products and salon services has a trailing four-quarter earnings surprise of 5.8%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 9.9% and 6.3%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have fallen 5.5% in the past year.
Price and Consensus: ULTA
Five Below: The company is focusing on improving its product selection, supply chain and digital capabilities to enhance customer experience and attract more shoppers. Five Below's innovative approach is well-suited to adapt to consumer trends. Its robust digital marketing efforts and aggressive store expansion strategy are key to its growth. The company’s strategic endeavors and value-oriented offerings position it well in a price-sensitive environment.
This extreme-value retailer for tweens, teens and beyond has a trailing four-quarter earnings surprise of 5.7%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 16% and 17.9%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 company have declined 3.8% in the past year.
Price and Consensus: FIVE
Arhaus: Strong demand, successful product launches, showroom expansions and geographic diversification collectively serve as robust pillars for Arhaus’ current success and future growth prospects. The company places a paramount focus on enhancing the client experience, with plans to augment its capabilities by hiring additional in-home designers and optimizing the final-mile delivery process.
This lifestyle brand and omnichannel retailer of premium home furnishings has a trailing four-quarter earnings surprise of 33.5%, on average. The Zacks Consensus Estimate for current financial-year revenues suggests growth of 4.2% from the year-ago reported figure. This Zacks Rank #3 stock has declined 12.7% in the past year.
Price and Consensus: ARHS
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4 Retail-Miscellaneous Stocks With Potential to Beat Industry Blues
As stimulus-driven spending gradually wanes and interest rates remain elevated, the Retail – Miscellaneous industry finds itself at a pivotal juncture. Consumers are adopting a more cautious stance toward their disposable income, signaling a return to more conservative spending habits. This shift in consumer sentiment is reverberating across various merchandise categories, creating challenges for businesses.
Nonetheless, the industry participants are proactively addressing the changing consumer environment by emphasizing a superior product strategy, enhancing their omnichannel capabilities and making prudent capital investments. Backed by these initiatives, companies such as Ulta Beauty, Inc. (ULTA - Free Report) , Five Below, Inc. (FIVE - Free Report) , Arhaus, Inc. (ARHS - Free Report) and Sally Beauty Holdings, Inc. (SBH - Free Report) are well-positioned to seize opportunities that may arise in this changed marketplace.
About the Industry
The Zacks Retail – Miscellaneous industry covers retailers of sporting goods, office supplies and specialty products and 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, and art and craft specialty outlets and sell their products to farmers, ranchers and others, as well as tradesmen and small businesses. The industry also comprises recreational boat and yacht retailers and specialty value retailers offering a broad range of trend-right, high-quality merchandise targeted at tween and teen customers. The players' profitability depends on a prudent pricing model, a well-organized supply chain and an effective merchandising strategy.
4 Key Industry Trends
Cautious Consumer Environment: The industry grapples with a complex set of challenges, as a soft demand environment casts a shadow on overall sales and revenue prospects. Consumers are contending with a host of economic issues, encompassing high inflation, elevated interest rates and geopolitical tension. This economic landscape prompts shifts in consumer behavior, potentially altering purchasing patterns across various retail segments.
Pressure on Margins to Linger: 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 the digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, any deleverage in the SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might build pressure on margins. Nonetheless, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and adopting effective pricing policies.
Focus on Boosting Portfolio & Market Reach: Most companies in the space are working on providing a wide assortment of products, enhancing the online experience and adopting a favorable pricing strategy to boost sales. Initiatives such as building omnichannel operations, coming up with reward programs and developing innovative products and services are worth mentioning. There has been an increase in demand for personal care items, domestic merchandise products and fitness-related products. Companies are looking to fuel sales via targeted marketing.
Digitization, Key to Growth: With the change in consumer shopping patterns 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 the supply chain. Companies’ initiatives to expand delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions have been a boon. Additionally, retailers are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind consumers’ product preferences and inclination toward online shopping, retailers are replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Retail – Miscellaneous industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #197, which places it in the bottom 22% 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 drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since the beginning of July 2023, the industry’s earnings estimate has declined 17.9%.
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 underperformed the broader Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has declined 7.3% over this period. Meanwhile, the S&P 500 has risen 20.3%, and the broader sector has increased 16.8% 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 16.2X compared with the S&P 500’s 20.31X and the sector’s 22.4X.
Over the last five years, the industry has traded as high as 23.93X, as low as 11.14X and at the median of 16.61X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Stocks to Watch
Sally Beauty: The successful execution of strategic initiatives, including customer engagement, brand penetration and innovative concepts, showcases management's commitment to long-term value creation. With strong free cash flow, strategic acquisitions and a focus on optimizing operations, Sally Beauty is poised for sustained growth. The introduction of concepts like Studio by Sally, Cosmo Prof Direct and Happy Beauty Company represents a commitment to innovation and diversification beyond core offerings.
Sally Beauty has a trailing four-quarter earnings surprise of 2.1%, on average. The Zacks Consensus Estimate for current financial-year EPS suggests growth of 2.7% from the year-ago reported figure. Shares of this Zacks Rank #2 (Buy) company have declined 21.6% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: SBH
Ulta Beauty: The company has been strengthening its omnichannel business and exploring the potential of both physical and digital facets. It has been implementing various tools to enhance guests' experience, like offering a virtual try-on tool and in-store education and reimagining fixtures, among others. Ulta Beauty focuses on offering customers a curated and exclusive range of beauty products through innovation.
This beauty retailer and a premier beauty destination for cosmetics, fragrance, skincare products, hair care products and salon services has a trailing four-quarter earnings surprise of 5.8%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 9.9% and 6.3%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have fallen 5.5% in the past year.
Price and Consensus: ULTA
Five Below: The company is focusing on improving its product selection, supply chain and digital capabilities to enhance customer experience and attract more shoppers. Five Below's innovative approach is well-suited to adapt to consumer trends. Its robust digital marketing efforts and aggressive store expansion strategy are key to its growth. The company’s strategic endeavors and value-oriented offerings position it well in a price-sensitive environment.
This extreme-value retailer for tweens, teens and beyond has a trailing four-quarter earnings surprise of 5.7%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 16% and 17.9%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 company have declined 3.8% in the past year.
Price and Consensus: FIVE
Arhaus: Strong demand, successful product launches, showroom expansions and geographic diversification collectively serve as robust pillars for Arhaus’ current success and future growth prospects. The company places a paramount focus on enhancing the client experience, with plans to augment its capabilities by hiring additional in-home designers and optimizing the final-mile delivery process.
This lifestyle brand and omnichannel retailer of premium home furnishings has a trailing four-quarter earnings surprise of 33.5%, on average. The Zacks Consensus Estimate for current financial-year revenues suggests growth of 4.2% from the year-ago reported figure. This Zacks Rank #3 stock has declined 12.7% in the past year.
Price and Consensus: ARHS