Inflation continues to be higher than the Fed’s target levels. However, despite the soaring prices, consumer spending remained pretty strong. According to the Commerce Department, retail sales rose 3% in January, beating the 1.9% Dow Jones estimate.
Joel Naroff, president of Naroff Economics LLC, said, “Consumers are in pretty decent shape.” He further added, “When people are comfortable in their job situation, that translates into consumer spending.”
Moreover, with the rapid expansion of retail outlets, the retail industry continues to grow. Also, the growing use of technologies like Artificial Intelligence (AI), Virtual Reality (VR), Augmented Reality (AR), and the Internet of Things (IoT) to improve operating capabilities and enhance the shopping experience is helping the market grow.
According to Contrive Datum Insights, the global smart retail market is expected to grow at a CAGR of 21% until 2030.
Given the backdrop, we think fundamentally sound retail stocks Ulta Beauty, Inc. (ULTA) and TravelCenters of America Inc. (TA) could be ideal buys in 2023, despite macro uncertainties.
Ulta Beauty, Inc. (ULTA)
ULTA operates as a retailer of beauty products. The company employs around 1,308 retail stores across 50 states and distributes its products through its website, ulta.com, and mobile applications.
ULTA’s gross profit margin of 43.75% is 23.8% higher than the 35.33% industry average, while its EBITDA margin of 18.61% is 67.8% higher than the industry average of 11.09%.
ULTA’s net sales increased 17.2% year-over-year to $2.34 billion for the fiscal 2023 third quarter ended October 29, 2022. Its gross came in at $962.82 million, up 22% year-over-year. The company’s net income increased 27.5% year-over-year to $274.59 million, while its EPS stood at $5.34, a 35.6% increase from the year-ago value.
Analysts expect ULTA’s revenue to increase 15.7% year-over-year to $9.99 billion in 2023. Its EPS is estimated to increase 27.3% year-over-year to $22.89 in 2023. It has surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 39.3% to close the last trading session at $531.56.
ULTA’s POWR Ratings reflect its strong outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Sentiment. Within the Specialty Retailers industry, it ranked #15 of 45 stocks. To see additional POWR ratings for Stability, Growth, Value, and Momentum for ULTA, click here.
TravelCenters of America Inc. (TA)
TA operates travel centers, truck service facilities, and restaurants in the United States and Canada. It offers diesel and gasoline fuel, truck maintenance and repair, full-service and quick-service restaurants, travel stores, car and truck parking, and other services.
On January 30, 2023, TA announced an agreement with Electrify America to provide electric vehicle charging at certain TA/Petro locations, with the first stations set to open in 2023.
Also, on January 12, 2023, TA, Petro Stopping Centers, and TA Express travel center brands signed 30 new franchise agreements in 2022, exceeding their annual objective. The company remains focused on franchising for accelerated network growth and continues to witness year-over-year franchise signing increases.
TA aims to add 20 franchised stores in 2023, with three new franchised locations opening in 2022.
TA’s forward EV/Sales of 0.28x is 77.3% lower than the industry average of 1.23x. Its forward Price/Sales multiple of 0.12 is 88.1% lower than the industry average of 0.96.
TA’s ROCE of 16.67% is 333.6% higher than the 12.47% industry average.
TA’s total revenues came in at $2.81 billion for the third quarter that ended September 30, 2022, up 44.9% year-over-year. Its net income increased 66.5% year-over-year to $36.98 million. In addition, its EPS increased 63.8% year-over-year to $2.49.
TA’s revenue is expected to increase 5.9% to $2.43 billion for the quarter ending March 2023. Its EPS is estimated to increase by 5% per annum for the next five years. It has surpassed EPS estimates in three of four trailing quarters. Over the past nine months, the stock has gained 132.3% to close the last trading session at $84.43.
TA’s overall B rating equates to a Buy in our POWR Ratings system. It has an A grade for Value and Growth. It is ranked #2 in the same industry.
We’ve also rated TA for Momentum, Sentiment, Stability, and Quality. Get all TA ratings here.
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ULTA shares were trading at $529.99 per share on Friday morning, down $1.57 (-0.30%). Year-to-date, ULTA has gained 12.99%, versus a 5.78% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
2 Retail Stocks That Are Worth the Risk in 2023 StockNews.com
