For Immediate Release
Chicago, IL – May 10, 2022 – Today, Zacks Equity Research discusses like Tractor Supply Co. TSCO, MarineMax, Inc. HZO and Build-A-Bear Workshop, Inc. BBW.
Product cost inflation, tight labor market and supply-chain bottlenecks are some of the headwinds that players in the Zacks Retail – Miscellaneous industry have been encountering lately. These along with geopolitical turbulence, thanks to the conflict between Russia and Ukraine, have dampened consumers' spirits.
That said, 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. Tractor Supply Co., MarineMax, Inc., and Build-A-Bear Workshop, Inc. look well poised, courtesy of their business operating model and opportunities ahead.
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 the tween and teen customer. The players' profitability depends on a prudent pricing model, a well-organized supply chain, and an effective merchandising strategy.
4 Key Industry Trends
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 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, container shortages, and supply delays.
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.
Consumer Confidence Eases on Soaring Inflation: Elevating prices and the war between Russia and Ukraine continue to pose a threat to consumer spending activity and confidence. Per Conference Board data, the Consumer Confidence Index nudged down to 107.3 in April from March's upwardly revised reading of 107.6.
Undoubtedly, the industry's prospects are correlated with the purchasing power of consumers. But higher gasoline and food prices have been squeezing disposable income. The consumer price index rose 1.2% month on month in March, following an increase of 0.8% in February. On a year-over-year basis, the metric rose 8.5%, the fastest pace since December 1981.
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 amid the pandemic.
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 #150, which places it in the bottom 41% 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 outperforms 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 December 2021, the industry's earnings estimate has declined 6.4%.
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 fallen 31.1% over this period compared with the S&P 500's decline of 1.6%. and the broader sector's decline of 28.9% 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 13.04X compared with the S&P 500's 17.87X and the sector's 20.83X.
Over the last five years, the industry has traded as high as 24.96X, as low as 11.28X and at the median of 16.33X.
Pick These 3 Retail - Miscellaneous Stocks
MarineMax: Significant geographic reach, product diversification and stellar demand bode well for this world's largest recreational boat and yacht retailer. MarineMax has been benefiting as consumers embrace and enjoy the boating lifestyle. The company's digitization endeavors have been helping it better engage with customers.
The company's investments in high-margin businesses such as finance, insurance, brokerage, marina and service operations bode well. Impressively, its strategic acquisitions have been playing a major role in driving the top line. Recently, MarineMax invested in Boatzon, the first 100% online boat and marine retailer providing secure direct marketplace services.
This Zacks Rank #1 (Strong Buy) company has a trailing four-quarter earnings surprise of 32.8%, on average. The Zacks Consensus Estimate for its current-fiscal earnings per share (EPS) has risen 4.8% in the past 30 days. Shares of MarineMax have declined 34.4% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
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 12.4%, on average. The company has an estimated long-term earnings growth rate of 9.8%. The Zacks Consensus Estimate for its current-fiscal EPS has risen 1.8% in the past 30 days. Shares of this Zacks Rank #2 (Buy) company have risen 3.5% in the past year.
Build-A-Bear Workshop: Enhanced marketing programs and omnichannel capabilities coupled with pent-up demand have been contributing to Build-A-Bear Workshop's performance. The company's focus on digital transformation, better engagement with consumers and extension of the addressable market by reaching beyond the core kid base to acquire new teen and adult customers should fortify its position in the industry. This multi-channel retailer of plush animals and related products envisions first-quarter fiscal 2022 total revenues to exceed the prior-year period figure.
Impressively, Build-A-Bear Workshop has a trailing four-quarter earnings surprise of 214.3%, on average. The Zacks Consensus Estimate for its current-fiscal EPS has risen 1.6% in the past 60 days. We also note that shares of this Zacks Rank #2 company have zoomed 148.2% in the past year.
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