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Zacks Industry Outlook Highlights Ulta Beauty, Five Below, MarineMax and Build-A-Bear Workshop

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For Immediate Release

Chicago, IL – November 2, 2023 – Today, Zacks Equity Research discusses Ulta Beauty, Inc. (ULTA - Free Report) , Five Below, Inc. (FIVE - Free Report) , MarineMax, Inc. (HZO - Free Report) and Build-A-Bear Workshop, Inc. (BBW - Free Report) .

Industry: Retail


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., Five Below, Inc., MarineMax, Inc. and Build-A-Bear Workshop, Inc. 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: Consumers are contending with a host of economic issues, encompassing high inflation, elevated interest rates and geopolitical tension. Cumulatively, these factors have significantly eroded consumer sentiment. Consumer confidence plays a pivotal role in shaping the overall health of the economy, and any decline in it could have significant repercussions on spending.

In October, U.S. consumer confidence, a vital barometer of economic health, tumbled to a five-month low. Per the Conference Board, the Consumer Confidence Index dropped to 102.6 in October from an upwardly revised reading of 104.3 in September. This could potentially lead to a less robust fourth quarter in terms of consumer spending.

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 #178, which places it in the bottom 27% 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 4.1%.

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 underperformed the broader Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.

The industry has declined 9.8% over this period. Meanwhile, the S&P 500 has risen 11.7%, and the broader sector has increased 14.3% 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 11.54X compared with the S&P 500's 17.69X and the sector's 20.1X.

Over the last five years, the industry has traded as high as 17.31X, as low as 11.54X and at the median of 14.54X.

4 Stocks to Watch

Build-A-Bear Workshop: The company is well-positioned for continued success in the industry, thanks to its store expansion endeavors, digital transformation initiatives and diversified revenue streams. Build-A-Bear has successfully broadened its revenue sources by expanding into gifting and collectibles. A robust product pipeline ensures that Build-A-Bear can stay competitive and continue to attract a wide customer base.

This multi-channel retailer of plush animals and related products has a trailing four-quarter earnings surprise of 21.6%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 6.2% and 16.9%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #1 (Strong Buy) company have advanced 45.5% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.

MarineMax: The company's investments in high-margin businesses, such as finance, insurance, brokerage, marina and service operations, bode well. Impressively, strategic acquisitions and organic initiatives have helped expand MarineMax's footprint across high-growth areas. MarineMax's significant geographic reach and product diversification position it for continued growth and stability in a dynamic environment. Markedly, the company's digitization endeavors have been helping it better engage with customers.

This largest recreational boat, yacht and superyacht services company carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for current financial-year revenues suggests growth of 3.1% from the year-ago reported figure. The stock has declined 13.3% in the past year.

Five Below: The company's strategic endeavors and value-oriented offerings position it well in a price-sensitive environment. Five Below has been focusing on enhancing merchandise assortment, improving the supply chain, strengthening digital capabilities and delivering better WOW products, including the Five Beyond offering.

This extreme-value retailer for tweens, teens and beyond has a trailing four-quarter earnings surprise of 29.2%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 15.3% and 16.2%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have risen 21.7% in the past year.

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 12.9%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 9.5% and 5.7%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 company have fallen 6.3% in the past year.

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