For Immediate Release
Chicago, IL – September 18, 2023 – Zacks Equity Research shares
Wix.com Ltd. ( WIX Quick Quote WIX - Free Report) as the Bull of the Day and Duluth Holdings Inc. ( DLTH Quick Quote DLTH - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on McDonald's Corporation ( MCD Quick Quote MCD - Free Report) , Domino's Pizza, Inc. ( DPZ Quick Quote DPZ - Free Report) and Yum China Holdings, Inc. ( YUMC Quick Quote YUMC - Free Report) .
Here is a synopsis of all five stocks:
Wix.com Ltd. is bolstering its website-building offerings to help it carve out more market share among professional site designers. Wix has posted blowout bottom-line results over the last year, including a big Q2 beat. Wall Street and developers are also gravitating toward its AI efforts and other new features.
The website builder's earnings outlook keeps getting better in an industry that isn't going out of style. In fact, Wix's push to focus on the bottom line helped it report its first-ever quarter of positive GAAP operating income in company history in Q2.
Wix is also trading above some key technical levels right now. On top of that, Wix stock still trades 70% below its peaks.
Expanding Beyond DIY
Wix started helping small businesses and really anyone else design and maintain a website back in 2006. The company offers extremely intuitive and user-friendly tools to help its customers essentially DIY (do-it-yourself)-style build their website through Wix's array of offerings.
The company over the last handful of years has raced to introduce far more features to help it attract professional website builders. For instance, Wix in early 2020 launched Editor X, a platform made specifically for designers and agencies. Since then, Wix has rolled out an AI Text Creator and tons of other features. Wix also has partnerships with the likes of Meta, Google, and many others.
Wix in July announced its plans to launch its new AI Site Generator, along with a suite of AI-powered capabilities. Even more recently, on August 1, the firm announced its new Wix Studio, which features a "newly-designed development and creation editor with code capabilities, multi-site management workspaces, and access to new monetization opportunities, all helping to drive efficiency."
All of these efforts are part of Wix's ongoing push to expand beyond DIY to help it tap into new growth areas to help it jumpstart its recently slowing sales.
For example, its Partners revenue surged 36% YoY in the second quarter vs. 13% total revenue growth. Wix defines a partner as any agencies and freelancers that build sites or applications for other users as well as revenue generated through B2B partnerships, such as LegalZoom or Vistaprint, and enterprise partners.
Growth, Improving Profitability, and Outlook
The company grew its revenue by an average of 50% between 2014 and 2018, following its late 2013 IPO. Wix's top-line expansion slowed alongside its sheer size and as it faced more competition and increased saturation in some key markets.
Still, Wix posted 28% average sales growth between 2019 and 2021. Wall Street then got worried as its growth slowed in 2022 to the tune of 9% revenue expansion.
The slowing YoY growth is somewhat natural as the company grew from around $200 million in sales in FY15 to $1.39 billion last year. The fading top-line expansion, mixed with the end of ultra-low interest rates, forced Wix to start cutting back on costs and focusing on the bottom line and profitable expansion. The company looked to streamline its business, including layoffs that were prevalent throughout the tech industry.
Wix said earlier this year that it plans to achieve the 'Rule of 40' in 2025. The idea here is that Wix's combined growth rate and profit margin should exceed 40%.
Some of Wix's profitability efforts were spurred by activist investor Starboard, which also pushed Salesforce and others to change course amid the rising interest rate environment, where growth at all costs was no longer valued.
Wix crushed our Q2 earnings estimates by 133% in early August, marking its fourth-straight triple-digit beat. More impressively and crucially, Wix last quarter reported its first ever period of positive GAAP operating income in company history.
Looking ahead, Zacks estimates call for Wix to swing from an adjusted loss of -$0.17 a share to +$3.35 per share in 2023 on the back of 12% higher sales to see it pull in $1.55 billion. The company is then projected to expand its sales by another 12% next year to help boost its bottom line by over 5%.
Wix's adjusted earnings outlook had surged since its early August release, up 55% for Q3, 45% for FY23, and 17% for FY24. The recent positivity is part of a long-term upward trend that began at the start of 2022. Its upward earnings revisions help it land a Zacks Rank #1 (Strong Buy).
Price, Valuation, and More
Wix shares have climbed 450% since its market debut roughly 10 years ago to blow away the Zacks Tech sector's 245%. Despite the run, Wix is now down 14% in the last five years to trade around its Covid-19 selloff lows and roughly 70% beneath its highs.
Thankfully, Wix has been on the comeback trail, up 30% over the last 12 months to match Tech. At roughly $95 a share, Wix trades 8% below its early-August highs and 26% under its average Zacks price target.
On the technical front, Wix trades above its 50-week moving average again. On top of that, Wix is trading above its 50-day and its 200-day, having completed the golden cross, where the shorted dated trendline climbs back above the long-term trend, near the end of August.
On the valuation front, Wix is trading at 3.2X forward 12-month sales. This marks a solid discount to the Zacks Tech sector and 44% value vs. its own historic median. Meanwhile, it is trading at 27.9X forward 12-month earnings to roughly match its industry.
Wix appears to be taking a ton of the necessary steps to help it run a profitable, growth-minded business for years and years to come.
Some of its recent platform rollouts, from AI and beyond, seem to offer substantial near-term and long-term upside. Plus, Wall Street is rather higher on Wix, with 11 of the 15 brokerage recommendations Zacks has coming in at "Strong Buys" or "Buys."
Duluth Holdings Inc. is a workwear-centric lifestyle brand that's been hit by slowing consumer spending, forcing it to offer more promotional and clearance sales.
Worst still, Duluth shares have fallen around 60% in the last two years. And DLTH is once again trading under some key technical levels after it gave up ground following a recent rally.
Duluth is a lifestyle brand designed for the 'modern, self-reliant American.' The Mount Horeb, Wisconsin-based firm sells quality, solution-based workwear and casual wear, alongside accessories for men and women. Duluth sells everything from rain jackets and vests to flannels and underwear. Duluth also sells supplies such as toolboxes and much more.
Duluth posted a nice stretch of growth from its IPO in late 2015 through 2019. DLTH still produced solid top-line expansion after that, but its growth is now fading on both the top and bottom lines.
Zacks estimates call for Duluth's revenue to slip 4% this year. Plus, it is projected to tumble from adjusted earnings of +$0.07 a share to a loss of -$0.12 a share this year.
Duluth's earnings outlook has tumbled rather quickly, with its current fiscal year estimate down from +$0.06 to -$0.12 since its August 31 earnings release. Meanwhile, its consensus estimates for next year slipped from +$0.20 to +$0.02. Duluth's downward revisions help it land a Zacks Rank #5 (Strong Sell) right now.
Duluth pointed to "lower average retail and order value due to lower levels of full-price selling and a higher level of promotional and clearance sales" as part of the reason for its recent weakness.
As I touched on up top, Duluth stock has fallen 60% in the last two years. This is part of an 80% drop during the past five years vs. its Zacks industry's 21% slide.
DLTH shares recently slipped right back underneath their 50-day and 200-day moving averages again. Its Textile – Apparel industry is in the bottom 19% of over 250 Zacks industries right now. Therefore, it might be best to stay away from Duluth.
Additional content: 3 Tempting Restaurant Stocks to Invest In Amid Rising Sales
Despite facing inflationary pressures, restaurant sales in August saw an uptick, driven by a rapid rise in menu prices, growth in average checks, and ongoing expansion efforts. This marks the sixth consecutive month of sales growth for the industry. Industry players also reap rewards from their collaborations with delivery services and digital platforms.
The industry has been capitalizing on the growth of off-premise sales, which predominantly encompass delivery, takeout, drive-thru, catering and meal kits and off-site alternatives like kiosks and food trucks.
Sales Increase in August
Per the U.S. Census Bureau, eating and drinking places recorded total sales of $90.8 billion on a seasonally adjusted basis in August, up 0.3% from July's downward-revised sales volume of $90.5 billion. The metric increased 8.2% on a year-over-year basis.
Most restaurant operators are also gaining from implementing ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service is steadily garnering positive customer feedback.
We have identified three restaurant stocks that will likely benefit from increasing sales and have robust top-line growth despite inflationary pressure. These include
McDonald's Corporation, Domino's Pizza, Inc. and Yum China Holdings, Inc.. 3 Prominent Picks McDonald's: McDonald's is a leading fast-food chain with more than 39,000 restaurants in over 100 countries. The company benefits from its strong comparable restaurant sales growth, digital initiatives, campaigns and loyalty programs. During the second quarter of 2023, digital dales (from the top six markets) came in at $8 billion, contributing 40% to the company's system-wide sales.
MCD has a long-term earnings growth expectation of 8.9%. This Zacks Rank #2 (Buy) stock has a trailing four-quarter earnings surprise of 9.5%, on average. The company's earnings and sales in 2023 are likely to witness a growth of 13.8% and 9.8% year over year, respectively. You can see
. the complete list of today's Zacks #1 Rank (Strong Buy) stocks here Domino's: The company benefits from strong comps growth driven by a solid digital ordering system and higher global retail sales. This and its focus on menu additions bode well. DPZ's accretive global expansion initiatives position it in more than 90 global markets, thus adding to its growth trend. The company operates as a pizza delivery company in the United States and internationally, with 20,008 locations in more than 90 markets.
DPZ has a long-term earnings growth expectation of 13%. This Zacks Rank #2 stock has a trailing four-quarter earnings surprise of 4.7%, on average. The company's earnings in 2023 are likely to witness a growth of 9.6% year over year.
Yum China: The company operates and franchises restaurants in the People's Republic of China. The company benefiting from menu innovation, unit expansion and digitalization efforts. The company is gradually shifting toward digital and content marketing to expand its customer base.
YUMC has a long-term earnings growth expectation of 20.6%. This Zacks Rank #2 stock has a trailing four-quarter earnings surprise of 31.7%, on average. The company's earnings and sales in 2023 are likely to witness a growth of 96.2% and 17.4% year over year, respectively.
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