Despite the macroeconomic challenges of supply chain disruptions and high inflation, retail companies continue to witness robust demand, with strong consumer spending serving as a key indicator of retail growth.
Therefore, investors could look to buy fundamentally strong specialty retailer stocks The ODP Corporation (ODP), Betterware de México, S.A.P.I. de C.V. (BWMX), and The Aaron's Company, Inc. (AAN).
The Commerce Department reported an increase in consumer spending of 0.8% in April, twice as much as expected, thereby boosting the economy’s growth prospects for the second quarter. Moreover, retail sales, excluding automobiles, gasoline, building materials, and food services, rebounded 0.7% in April.
With increasing consumer demand, higher disposable income, and changing consumer preferences, specialty retailers are expected to benefit. The global specialty retailers market will likely reach $42.73 trillion by 2031, expanding at a CAGR of 4%.
Given these factors, investing in the featured specialty retailer stocks could be wise. These stocks are rated B (Buy) in our proprietary POWR Ratings system. Let’s take a closer look at their fundamentals.
The ODP Corporation (ODP)
ODP provides business services, supplies, products, and digital workplace technology solutions for small, medium, and enterprise businesses worldwide. The company operates through four divisions: ODP Business Solutions; Office Depot; Veyer; and Varis.
On April 26, 2023, ODP announced that it is expanding its longstanding relationship with Microsoft Corporation (MSFT). Through this collaboration, ODP is leveraging the power of Microsoft Azure OpenAI, including ChatGPT, to further improve customer experience and position the company to pursue growth opportunities more efficiently.
In terms of forward non-GAAP P/E, ODP’s 8.71x is 37.2% lower than the 13.87x industry average. Its 0.27x forward EV/Sales is 75.8% lower than the industry average of 1.13x. Likewise, its 5.53x forward EV/EBITDA is 41.4% lower than the 9.44x industry average.
For the first quarter (ended April 1, 2023), ODP’s adjusted operating income increased 12.5% year-over-year to $99 million. The company’s adjusted net income from continuing operations increased 17.2% from the prior-year period to $75 million.
Its adjusted EBITDA increased 4.8% year-over-year to $131 million. Also, its adjusted EPS from continuing operations came in at $1.78, representing an increase of 51% year-over-year.
ODP’s EPS for the quarter ending June 30, 2023, is expected to increase 1.2% year-over-year to $0.80. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 20.2% to close the last trading session at $42.90.
ODP’s POWR Ratings reflect solid prospects. The stock 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.
Within the Specialty Retailers industry, it is ranked #1 out of 44 stocks. The company has an A grade for Growth and Value and a B for Quality.
Click here to see the additional ratings of ODP for Momentum, Stability, and Sentiment.
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).
In terms of forward non-GAAP P/E, BWMX’s 8.27x is 40.4% lower than the 13.87x industry average. Its 5.03x forward EV/EBITDA is 46.7% lower than the industry average of 9.44x. Likewise, its 0.60x forward Price/Sales is 27.7% lower than the 0.83x industry average.
BWMX’s net revenue for the first quarter (ended March 31, 2023) increased 74.9% year-over-year to MXN3.27 billion ($186.05 million). The company’s gross profit increased 100.2% year-over-year to MXN2.38 billion ($135.42 million). Additionally, its operating income increased 7.4% year-over-year to MXN565.21 million ($32.17 million).
BWMX’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 19.3% and 11.1% year-over-year to $0.35 and $177.39 million, respectively. Its revenue for the quarter ending December 31, 2023, is expected to increase 2.8% year-over-year to $5.52 billion. The stock has gained 88.9% year-to-date to close the last trading session at $12.13.
It is no surprise that BWMX has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #2 in the same industry. The stock has an A grade for Sentiment and a B for Value and Quality.
Click here to see the additional ratings of BWMX for Growth, Momentum, and Stability
The Aaron's Company, Inc. (AAN)
AAN provides lease-to-own and retail purchase solutions. It operates through Aaron's Business and BrandsMart segments.
In terms of forward non-GAAP P/E, AAN’s 11.03x is 20.5% lower than the 13.87x industry average. Its 0.48x forward EV/Sales is 57.3% lower than the industry average of 1.13x. Likewise, its 0.18x forward Price/Sales is 78.2% lower than the 0.83x industry average.
AAN’s revenues for the second quarter (ended March 31, 2023) increased 21.5% year-over-year to $554.36 million. Its gross profit increased 3.8% year-over-year to $295.69 million. Moreover, its EPS came in at $0.42.
AAN’s EPS for the quarter ending December 31, 2023, is expected to increase 101.6% year-over-year to $0.18. Its revenue for fiscal 2024 is expected to increase 3.5% year-over-year to $2.29 billion.
The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 8.6% to close the last trading session at $12.89.
AAN’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #7 in the Specialty Retailers industry. It has a B grade for Value, Sentiment, and Quality. We have also given AAN grades for Growth, Momentum, and Stability. Get all AAN ratings here.
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ODP shares were trading at $42.20 per share on Monday afternoon, down $0.70 (-1.63%). Year-to-date, ODP has declined -7.33%, versus a 12.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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