The retail industry is growing considerably thanks to changing consumer profiles, robust consumer spending, and increasing disposable incomes. Given the industry’s tailwinds, investors could consider buying fundamentally sound retail stocks The Aaron's Company, Inc. (AAN), Murphy USA Inc. (MUSA), and Upbound Group, Inc. (UPBD) this month.
The Commerce Department reported that consumer spending rose 0.8% in February, the largest gain since last year, underscoring the economy's resilience. A robust economy with confident consumers willing to invest in unique or niche products leads to higher sales, pricing power, and the potential to attract new customers for specialty retailers.
Additionally, the National Retail Federation expects retail sales to increase by 2.5% to 3.5% in 2024, reaching $5.23 trillion and $5.28 trillion.
The retail market is expected to grow to $42.76 trillion in 2028 at a CAGR of 8.1%. The market growth will be driven by increased investment in innovative technologies, a focus on in-store automation to streamline retail shopping processes, and consideration of investments in interactive vending machine technology to boost brand awareness and improve customer experience.
Besides, the global specialty retailers market is expected to be worth $42.70 billion by 2031, growing at a 4% CAGR. Evolving consumer preferences, rapid urbanization, and the surge in the number of international brands are key factors propelling the market growth during the forecast period.
Moreover, digital retailing is revolutionizing the traditional in-store experience by harnessing technology to offer a seamless shopping journey, and this trend is poised to drive significant growth in the specialty retailers’ market in the upcoming years.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Specialty Retailers industry stocks, beginning with the third choice.
Stock #3: The Aaron's Company, Inc. (AAN)
AAN offers lease-to-own and retail purchase solutions. The company operates through Aaron’s Business and BrandsMart segments. It engages in direct-to-consumer sales and lease solutions of furniture, appliances, electronics, computers, and other home products via company-operated and franchised stores in the United States and Canada, alongside its e-commerce platforms.
On February 26, 2024, AAN declared a regular quarterly cash dividend of $0.125 per share, payable on April 3, 2024, to shareholders of record as of the close of business on March 14, 2024.
AAN’s annual dividend of $0.50 translates to a yield of 6.68% at the current share price, while its four-year average dividend yield is 2.73%. The company’s dividend payouts have grown at a CAGR of 71% over the past three years.
On November 22, 2023, AAN announced the opening of its newest company-operated Aaron's GenNext stores in Live Oak, FL and Rockford, IL. The new Aaron's stores in Live Oak and Rockford mark a return to both markets for Aaron's, and they reflect the latest expansion of the company's GenNext store initiative, which is transforming the in-store customer experience.
AAN’s trailing-12-month gross profit margin of 52.31% is 45.8% higher than the industry average of 35.88%. Also, the stock’s trailing-12-month levered FCF margin and CAPEX/Sales of 28.96% and 4.41% are 421.7% and 44.2% higher than the industry averages of 5.55% and 3.06%, respectively.
During the fiscal year that ended December 31, 2023, AAN reported revenue of $2.14 billion. The company posted adjusted EBITDA of $136 million, and its non-GAAP EPS came in at $0.81. Also, its adjusted free cash flow increased 10.5% year-over-year to $102.30 million.
Per the guidance for the first quarter of 2024, AAN expects revenue to range between $2.06 billion and $2.16 billion. Also, the company’s adjusted EBITDA is expected to be between $105 million and $125 million for the quarter.
Street expects AAN’s revenue and EPS for the fiscal year (ending December 2025) to increase 2.7% and 636.5% year-over-year to $2.18 billion and $0.64, respectively. Over the past month, AAN’s stock has gained 2.2% to close the last trading session at $7.48.
AAN’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.
AAN has a B grade for Value and Quality. The stock is ranked #11 out of 42 stocks in the Specialty Retailers industry.
To see the other ratings of AAN for Sentiment, Growth, Momentum, and Stability, click here.
Stock #2: Murphy USA Inc. (MUSA)
MUSA engages in the marketing of retail motor fuel products and convenience merchandise. The company operates retail stores under the Murphy USA, Murphy Express, and QuickChek brands.
MUSA’s trailing-12-month ROTA of 12.83% is 203.9% higher than the 4.22% industry average. Also, its trailing-12-month ROCE and ROTC of 75.78% and 17.19% are significantly higher than the 11.37% and 6.07% industry averages, respectively.
During the fourth quarter that ended December 31, 2023, MUSA’s merchandise sales increased 2.9% year-over-year to $1.02 billion. Its net income and EPS came in at $150 million and $7, up 27.4% and 34.4% from the prior year’s quarter, respectively. The company’s adjusted EBITDA of $275.20 million indicates an increase of 19.5% year-over-year.
In addition, the company’s total current assets came in at $4.34 billion as of December 31, 2023, compared to $4.12 billion as of December 31, 2022.
Analysts expect MUSA’s EPS for the first quarter (ending March 2024) to grow 1.7% year-over-year to $4.88. Similarly, its EPS for the fiscal year (ending December 2024) is expected to increase 7.6% year-over-year to $27.57. Moreover, the company has exceeded the consensus EPS estimates in three of the trailing four quarters, which is remarkable.
Shares of MUSA have surged 34.8% over the past nine months and 62.5% over the past year to close the last trading session at $419.29.
MUSA’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.
MUSA has a B grade for Quality. It is ranked #10 among 42 stocks in the Specialty Retailers industry.
In addition to the POWR Ratings highlighted above, you can check MUSA’s ratings for Value, Growth, Stability, Momentum, and Sentiment here.
Stock #1: Upbound Group, Inc. (UPBD)
UPBD is an omni-channel platform company that engages in leasing household durable goods to customers on a lease-to-own basis in the United States, Puerto Rico, and Mexico. The company operates through four segments: Rent-A-Center Business; Acima; Mexico; and Franchising.
UPBD’s trailing-12-month gross profit margin of 50.65% is 41.2% higher than the 35.88% industry average. The stock’s 33.79% trailing-12-month levered FCF margin is 508.9% higher than the 5.55% industry average. Also, its 1.46x trailing-12-month asset turnover ratio is 46.1% higher than the 1x industry average.
For the fourth quarter that ended December 31, 2023, UPBD reported a total revenue of $1.02 billion, up 2.8% year-over-year. Its merchandise sales grew 7.6% year-over-year to $25.27 million. Its non-GAAP gross profit rose 3.5% from the year-ago value to $512.60 million. Also, its non-GAAP net earnings and EPS were $45.19 million and $0.81, respectively.
Street expects UPBD’s EPS for the fiscal year (ending December 2024) to increase 6.8% year-over-year to $3.79. The company’s revenue for the current year is expected to grow 3.7% year-over-year to $4.14 billion. In addition, UPBD topped the consensus EPS estimates in each of the trailing four quarters.
Over the past year, UPBD’s shares have gained 36.5% to close the last trading session at $33.45.
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, Sentiment, and Quality. Within the same industry, it is ranked #8 out of 42 stocks.
To see UPBD’s additional ratings for Value, Momentum, and Stability, click here.
What To Do Next?
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AAN shares were trading at $7.33 per share on Wednesday morning, down $0.15 (-2.01%). Year-to-date, AAN has declined -31.40%, versus a 9.40% 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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