3 Retail Stock Buys for a Balanced Portfolio The amplified influence of social media, increased internet penetration, and technological prowess are driving the retail industry. Therefore, it could be wise to buy fundamentally strong retail stocks, Ross Stores...
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The amplified influence of social media, increased internet penetration, and technological prowess are driving the retail industry. Therefore, it could be wise to buy fundamentally strong retail stocks, Ross Stores (ROST), Steven Madden (SHOO), and Upbound Group (UPBD) for a balanced portfolio. Keep reading….
The increase in affluent consumers and the widespread adoption of technologies, including online shopping and virtual showrooms, are expected to drive growth in the retail industry. Given the industry's tailwinds, investors could consider buying fundamentally sound retail stocks, Ross Stores, Inc. (ROST), Steven Madden, Ltd. (SHOO), and Upbound Group, Inc. (UPBD), for a balanced portfolio.
The retail market is being driven by the increased investment in innovative technologies, a focus on in-store automation to streamline retail shopping processes, consideration of investments in interactive vending machine technology to boost brand awareness and enhance customer experience, and the adoption of robots to reduce costs and improve productivity.
Hence, the retail market is expected to see strong growth in the next few years. It is expected to grow to $42.76 trillion in 2028 at a CAGR of 8.1%.
Furthermore, millennials are among the fastest-growing consumer groups for luxury fashion products. Having grown up in the age of mobile technology, millennials, and Gen Z are tech-savvy and highly accustomed to an omnichannel shopping experience.
Moreover, they are well-informed about the various luxury fashion brands and seek luxury items as part of their overall lifestyle experience. Therefore, the global luxury fashion market is expected to grow at a CAGR of 5.5% by 2031.
Additionally, in 2024, the fashion market worldwide is projected to generate a revenue of $770.90 billion. As per reports by Statista, the number of users in the fashion market is expected to be 2.8 billion owing to increasing internet penetration and the growing influence of social media and digital marketing in shopping decisions.
Furthermore, targeting niche markets with specially curated products and services, the specialty retailers market also shows a lot of prospects. In the United States, earnings in this market are expected to grow by 12% per year.
Considering these encouraging trends, let's take a look at the fundamentals of the three best retail industry stocks.
Ross Stores, Inc. (ROST)
ROST is engaged in operating off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. Its stores primarily offer branded and designer apparel, accessories, footwear, and home fashions.
On May 22, the company declared a regular quarterly dividend of $0.3675 per common share, payable to its shareholders on June 28, 2024. ROST has a four-year average dividend yield of 0.93%, while its annual dividend of $1.47 translates to a 1.02% yield on current prices. Its dividend payouts have grown at CAGRs of 68.87% and 8.10% over the past three and five years, respectively.
On March 6, ROST announced that it had opened 11 Ross Dress for Less and seven dd's DISCOUNTS stores in 11 different states in February and March. The expansion of both chains into existing markets aligns with the company's vision of opening approximately 90 new stores this year.
ROST's trailing-12-month EBIT margin and levered FCF margin of 11.78% and 5.94% are 55% and 9.5% higher than the industry averages of 7.60% and 5.43%, respectively. Also, the stock's trailing-12-month asset turnover ratio of 1.48x is 49% higher than the industry average of 0.99x.
In the first quarter that ended May 4, 2024, ROST's sales increased 8.2% year-over-year to $4.86 billion. Its net earnings of $487.99 million indicate a growth of 31.5% year-over-year. The company's earnings per share grew 33.9% year-over-year to $1.46. In addition, as of May 4, 2024, the company's total assets stood at $14.49 billion, compared to $13.62 million as of April 29, 2023.
Street expects ROST's revenue and EPS for the second quarter (ending July 2024) to increase 6.1% and 12.4% year-over-year to $5.24 billion and $1.48, respectively. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past month, the stock has gained 8.8% to close the last trading session at $144.15.
ROST's POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ROST has a B grade for Sentiment, Momentum, and Quality. The stock is ranked #20 out of 60 stocks in the A-rated Fashion & Luxury industry.
To see the other ratings of ROST for Growth, Value, and Stability, click here.
Steven Madden, Ltd. (SHOO)
SHOO designs, sources, and markets fashion-forward branded and private-label footwear, accessories, and apparel in the United States and internationally. It operates through Wholesale Footwear; Wholesale Accessories/Apparel; Direct-to- Consumer; and Licensing segments.
SHOO's trailing-12-month gross profit margin of 41.65% is 13.3% higher than the 36.75% industry average. Likewise, the stock's trailing-12-month EBIT margin of 11.40% is 49.9% higher than the 7.60% industry average. Its trailing-12-month EBITDA margin of 12.03% is 9% higher than the 11.04% industry average.
In the first quarter that ended March 31, 2024, SHOO's net sales increased 3.9% year-over-year to $550.57 million. Its gross profit grew 6.5% year-over-year to $225.02 billion. In addition, the company's adjusted net income grew 25% and 30% year-over-year to $47.03 million and $0.65 per share, respectively.
Analysts expect SHOO's revenue for the second quarter (ending June 2024) to grow 17% year-over-year to $518.31 million. For the same quarter, the company's EPS is expected to grow 10.6% from the prior year to $0.52. The company has surpassed the EPS estimates in each of the trailing four quarters.
Shares of SHOO have surged 17.8% over the past six months and 38.5% over the past year to close the last trading session at $45.31.
SHOO's sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
SHOO is ranked #12 in the Fashion & Luxury industry. You can check SHOO's ratings here.
Upbound Group, Inc. (UPBD)
UPBD leases household durable goods to customers on a lease-to-own basis in the United States, Puerto Rico, and Mexico. It operates through four segments: Rent-A-Center; Acima; Mexico; and Franchising.
On June 5, the company declared a regular quarterly dividend of $0.37 per common share, payable to its shareholders on July 9, 2024.
UPBD's four-year average dividend yield is 4.05%, while its annual dividend of $1.48 translates to a 4.47% yield on current prices.
On May 29, UPBD announced the opening of a new Rent-A-Center store in Espanola, New Mexico. Rent-A-Center Store Manager Casey Montoya and his customer support team offered the residents of Espanola a flexible lease-to-own option for high-quality furniture, appliances, electronics, computers, and a wide range of other durable goods.
UPBD's trailing-12-month gross profit margin of 50.22% is 36.9% higher than the 36.88% industry average. Also, its trailing-12-month ROTC of 7.69% is 22.7% higher than the 6.27% industry average. The stock's trailing-12-month levered FCF margin of 31.70% is 483.5% higher than the 5.43% industry average.
During the first quarter, which ended March 31, 2024, UPBD's total revenues grew 7.8% year-over-year to $1.10 billion. The company's gross profit increased 4.5% year-over-year to $529.07 million. In addition, the company's operating profit came in at $61.76 million, compared to a loss of $35.11 million in the previous-year quarter.
Also, its net earnings came in at $27.69 million and $0.50 per share.
The consensus revenue of $1.03 billion for the third quarter ending September 2024 represents a 5.2% increase year-over-year. Its EPS is expected to grow 19.8% year-over-year to $0.95 for the same period. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past six months, UPBD's stock has gained 7% to close the last trading session at $33.13.
UPBD's POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
UPBD has a B grade for Growth and Quality. Within the Specialty Retailers industry, it is ranked #5.
To see UPBD's additional ratings for Stability, Momentum, Value, and Sentiment, click here.
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ROST shares were unchanged in premarket trading Friday. Year-to-date, ROST has gained 4.42%, versus a 12.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program.Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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