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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. Ulta Beauty, Inc., Tractor Supply Company, Five Below, Inc., Arhaus, Inc. and Build-A-Bear Workshop, Inc. look well poised, courtesy of their business operating model, growth prospects and cost structure.
However, product cost inflation, tight labor market and supply-chain issues are some of the headwinds that players in the industry have been encountering. Notwithstanding inflationary pressure, the retail sector takes center stage with the arrival of the holiday season.
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 farmers, ranchers, and others as well as tradesmen and small businesses.
The industry also comprises recreational boat and yacht retailers as well as 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, well-organized supply chain and effective merchandising strategy.
4 Key Industry Trends
Consumers’ Willingness to Spend: The industry’s prospects are correlated with the purchasing power of consumers. The players in the industry have been focusing on deepening engagements with consumers and enhancing digital and data analytics capabilities. We believe that stimulus savings from last year, steady wage gains and a lower unemployment rate should help keep the demand alive this holiday season.
Per the National Retail Federation, holiday retail sales during the November and December period are anticipated to improve in the band of 6-8% over the last year to $942.6-$960.4 billion. We note that retail sales rose 1.3% on a sequential basis in the month of October.
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 omni-channel operations, coming up with reward programs, and developing innovative products and services are worth mentioning. There has been an increase in demand for office supplies, 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. In fact, 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.
Eye 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 the 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. Of late, the industry participants have been dealing with high labor costs amid the tight labor market, increased freight costs and supply-chain issues. Nonetheless, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks as well as adopting effective pricing policies.
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 #92, which places it in the top 37% 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 gaining confidence in this group’s earnings growth potential. Since the beginning of October 2022, the industry’s earnings estimate has increased 4.2%.
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 declined 20.6% over this period compared with the S&P 500’s decline of 17%. Meanwhile, the broader sector has fallen 27.4% in the said time frame.
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 16.61X compared with the S&P 500’s 17.53X and the sector’s 21.42X.
Over the last five years, the industry has traded as high as 24.96X, as low as 11.28X and at the median of 16.51X.
5 Retail-Miscellaneous Stocks to Keep a Close Eye On
Build-A-Bear Workshop: Enhanced marketing programs and omnichannel capabilities coupled with pent-up demand have been contributing to Build-A-Bear Workshop’s upbeat performance. The company’s brand leveraging diversification strategy positions it to drive growth. This multi-channel retailer of plush animals and related products envisions fiscal 2022 total revenues in the band of $455 million to $465 million compared with $411.5 million in fiscal 2021.
Impressively, Build-A-Bear Workshop has a trailing four-quarter earnings surprise of 14.7%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 11.9% and 21.5%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #1 (Strong Buy) company have risen 18.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arhaus: Strong consumer demand, new collections, brand awareness and ramp-up of new showrooms have been driving Arhaus’ top-line performance. The company plans to add five to seven new traditional showrooms per year. Arhaus estimates fiscal 2022 net revenues in the band of $1,173 million to $1,193 million and foresees comparable growth in the bracket of 43% to 48%.
The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 49.1% and 21.7%, respectively, from the year-ago reported figure. This Zacks Rank #2 (Buy) company has a trailing four-quarter earnings surprise of 112%, on average, and an estimated long-term earnings growth rate of 14.3%. Shares of this lifestyle brand and omni-channel retailer of premium artisan-crafted home furnishings have fallen 4% in the past year.
Ulta Beauty: The company has been strengthening its omni-channel 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 26.2%, on average. This Zacks Rank #2 company has an estimated long-term earnings growth rate of 13.8%. The Zacks Consensus Estimate for Ulta Beauty’s current financial year sales suggests growth of 15.2% from the year-ago period. Shares of ULTA have rallied 18.7% in the past year.
Tractor Supply Company: This largest rural lifestyle retailer in the United States has been benefiting from its robust business strategies, "Life Out Here" and everyday low pricing, as well as favorable consumer demand for product categories. In addition, Tractor Supply's Neighbor's Club loyalty program remains sturdy. Its omni-channel initiatives, including curbside pickup and same-day delivery, have been aiding digital sales. We note that strength in everyday merchandise, including consumable, usable and edible products, has been fueling sales.
Tractor Supply has a trailing four-quarter earnings surprise of 5.8%, on average. The company has an estimated long-term earnings growth rate of 10.3%. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 10.5% and 11.6%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have declined 5.6% in the past year.
Five Below: The company’s strategic endeavors and value-oriented offerings position it well amid a price-sensitive environment. Its focus on trend-right products, digitization, pricing strategy, store expansion and supply chain network should help navigate the tough retail landscape. Management cited that a continued improvement in the ticket and transaction metrics, disciplined cost management and a sustained focus on the long-term Triple Double vision contributed to the company’s better-than-expected performance in the third quarter.
Five Below has a trailing four-quarter earnings surprise of 26.3%, on average. This Zacks Rank #3 company has an estimated long-term earnings growth rate of 19%. The Zacks Consensus Estimate for current financial-year revenues suggests growth of 6.6% from the year-ago reported figure. Shares of this extreme-value retailer for tweens, teens and beyond have declined approximately 10.3% in the past year.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Ulta Beauty, Tractor Supply Company, Five Below, Arhaus and Build-A-Bear Workshop
For Immediate Release
Chicago, IL – December 9, 2022 – Today, Zacks Equity Research discusses Ulta Beauty, Inc. (ULTA - Free Report) , Tractor Supply Company (TSCO - Free Report) , Five Below, Inc. (FIVE - Free Report) , Arhaus, Inc. (ARHS - Free Report) and Build-A-Bear Workshop, Inc. (BBW - Free Report) .
Industry: Miscellaneous Retail
Link: https://www.zacks.com/commentary/2026730/5-stocks-worth-a-look-in-the-promising-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. Ulta Beauty, Inc., Tractor Supply Company, Five Below, Inc., Arhaus, Inc. and Build-A-Bear Workshop, Inc. look well poised, courtesy of their business operating model, growth prospects and cost structure.
However, product cost inflation, tight labor market and supply-chain issues are some of the headwinds that players in the industry have been encountering. Notwithstanding inflationary pressure, the retail sector takes center stage with the arrival of the holiday season.
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 farmers, ranchers, and others as well as tradesmen and small businesses.
The industry also comprises recreational boat and yacht retailers as well as 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, well-organized supply chain and effective merchandising strategy.
4 Key Industry Trends
Consumers’ Willingness to Spend: The industry’s prospects are correlated with the purchasing power of consumers. The players in the industry have been focusing on deepening engagements with consumers and enhancing digital and data analytics capabilities. We believe that stimulus savings from last year, steady wage gains and a lower unemployment rate should help keep the demand alive this holiday season.
Per the National Retail Federation, holiday retail sales during the November and December period are anticipated to improve in the band of 6-8% over the last year to $942.6-$960.4 billion. We note that retail sales rose 1.3% on a sequential basis in the month of October.
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 omni-channel operations, coming up with reward programs, and developing innovative products and services are worth mentioning. There has been an increase in demand for office supplies, 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. In fact, 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.
Eye 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 the 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. Of late, the industry participants have been dealing with high labor costs amid the tight labor market, increased freight costs and supply-chain issues. Nonetheless, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks as well as adopting effective pricing policies.
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 #92, which places it in the top 37% 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 gaining confidence in this group’s earnings growth potential. Since the beginning of October 2022, the industry’s earnings estimate has increased 4.2%.
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 declined 20.6% over this period compared with the S&P 500’s decline of 17%. Meanwhile, the broader sector has fallen 27.4% in the said time frame.
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 16.61X compared with the S&P 500’s 17.53X and the sector’s 21.42X.
Over the last five years, the industry has traded as high as 24.96X, as low as 11.28X and at the median of 16.51X.
5 Retail-Miscellaneous Stocks to Keep a Close Eye On
Build-A-Bear Workshop: Enhanced marketing programs and omnichannel capabilities coupled with pent-up demand have been contributing to Build-A-Bear Workshop’s upbeat performance. The company’s brand leveraging diversification strategy positions it to drive growth. This multi-channel retailer of plush animals and related products envisions fiscal 2022 total revenues in the band of $455 million to $465 million compared with $411.5 million in fiscal 2021.
Impressively, Build-A-Bear Workshop has a trailing four-quarter earnings surprise of 14.7%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 11.9% and 21.5%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #1 (Strong Buy) company have risen 18.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arhaus: Strong consumer demand, new collections, brand awareness and ramp-up of new showrooms have been driving Arhaus’ top-line performance. The company plans to add five to seven new traditional showrooms per year. Arhaus estimates fiscal 2022 net revenues in the band of $1,173 million to $1,193 million and foresees comparable growth in the bracket of 43% to 48%.
The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 49.1% and 21.7%, respectively, from the year-ago reported figure. This Zacks Rank #2 (Buy) company has a trailing four-quarter earnings surprise of 112%, on average, and an estimated long-term earnings growth rate of 14.3%. Shares of this lifestyle brand and omni-channel retailer of premium artisan-crafted home furnishings have fallen 4% in the past year.
Ulta Beauty: The company has been strengthening its omni-channel 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 26.2%, on average. This Zacks Rank #2 company has an estimated long-term earnings growth rate of 13.8%. The Zacks Consensus Estimate for Ulta Beauty’s current financial year sales suggests growth of 15.2% from the year-ago period. Shares of ULTA have rallied 18.7% in the past year.
Tractor Supply Company: This largest rural lifestyle retailer in the United States has been benefiting from its robust business strategies, "Life Out Here" and everyday low pricing, as well as favorable consumer demand for product categories. In addition, Tractor Supply's Neighbor's Club loyalty program remains sturdy. Its omni-channel initiatives, including curbside pickup and same-day delivery, have been aiding digital sales. We note that strength in everyday merchandise, including consumable, usable and edible products, has been fueling sales.
Tractor Supply has a trailing four-quarter earnings surprise of 5.8%, on average. The company has an estimated long-term earnings growth rate of 10.3%. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 10.5% and 11.6%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have declined 5.6% in the past year.
Five Below: The company’s strategic endeavors and value-oriented offerings position it well amid a price-sensitive environment. Its focus on trend-right products, digitization, pricing strategy, store expansion and supply chain network should help navigate the tough retail landscape. Management cited that a continued improvement in the ticket and transaction metrics, disciplined cost management and a sustained focus on the long-term Triple Double vision contributed to the company’s better-than-expected performance in the third quarter.
Five Below has a trailing four-quarter earnings surprise of 26.3%, on average. This Zacks Rank #3 company has an estimated long-term earnings growth rate of 19%. The Zacks Consensus Estimate for current financial-year revenues suggests growth of 6.6% from the year-ago reported figure. Shares of this extreme-value retailer for tweens, teens and beyond have declined approximately 10.3% in the past year.
Why Haven’t You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.