Over the past two years, massive demand fluctuations have forced retailers to transform systems and leverage technological advancements. Companies have built resiliency by learning that rapidly evolving consumer preferences require more effective analytics and tools to build loyalty.
Despite macroeconomic challenges posing threats to the current market, investors could benefit from fundamentally strong and profitable retail stocks The Aaron's Company, Inc. (AAN), Build-A-Bear Workshop, Inc. (BBW), and Envela Corporation (ELA).
Consumer spending edged up 0.1% for the month of May, as reported by the Commerce Department. While the Fed is determined to bring inflation down to its target of 2%, consumer spending and retail sales are anticipated to remain strong.
Moreover, with the proliferation of technology, the retail industry has the potential to benefit from advancements in automation. New areas in the retail industry that make use of emerging technologies are increasingly becoming mainstream, such as self-checkout.
Moreover, amid higher disposable incomes 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, investors could look to buy the featured retail stocks. Let’s take a closer look at their fundamentals.
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 the trailing-12-month levered FCF margin, AAN’s 25.34% is 587.2% higher than the 3.69% industry average. Its 50.93% trailing-12-month gross profit margin is 44.5% higher than the 35.25% industry average. Likewise, its 1.43x trailing-12-month asset turnover ratio is 43.0% higher than the industry average of 1.00x.
AAN’s revenues for the first quarter (ended March 31, 2023) increased 21.5% year-over-year to $554.36 million. Its gross profit increased 11.1% year-over-year to $283.02 million. Moreover, its EPS came in at $0.41.
AAN’s EPS for the quarter ending December 31, 2023, is expected to increase 114.3% year-over-year to $0.19. 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 59.7% to close the last trading session at $15.00.
AAN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 of 42 in the Specialty Retailers industry. It has a B grade for Value, Sentiment, and Quality. Click here to see the other POWR Ratings of AAN for Growth, Momentum, and Stability.
Build-A-Bear Workshop, Inc. (BBW)
BBW operates as a multi-channel retailer of plush animals and related products in the United States, Canada, the United Kingdom, Ireland, and internationally. The company operates through three segments: Direct-to-Consumer; Commercial; and International Franchising.
In terms of the trailing-12-month Return on Total Assets, BBW’s 18.49% is 407.8% higher than the 3.64% industry average. Its 46.65% trailing-12-month Return on Common Equity is 374.1% higher than the 9.84% industry average. Likewise, its 9.85% trailing-12-month levered FCF margin is 167.1% higher than the 3.69% industry average.
For the fiscal first quarter (ended April 29, 2023), BBW’s total revenues increased 2.0% year-over-year to $120.05 million. The company’s net income increased 2.9% year-over-year to $14.61 million. Additionally, its EPS came in at $0.98, representing a 10.1% increase over the prior-year quarter.
BBW’s EPS and revenue for the quarter ending October 31, 2023, are expected to increase 7.8% and 1.6% year-over-year to $0.55 and $106.14 million, respectively. Over the past nine months, the stock has gained 67.8% to close the last trading session at $22.41.
BBW’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 #8 in the same industry. In addition, it has an A grade for Quality. Click here to see the other ratings of BBW for Growth, Value, Momentum, Stability, and Sentiment.
Envela Corporation (ELA)
ELA buys and sells jewelry and bullion products to individual consumers, dealers, and institutions in the United States. It offers jewelry and fine-watch products, custom-made jewelry, diamonds, and other products.
In terms of the trailing-12-month Return on Total Assets, ELA’s 21.11% is 479.7% higher than the 3.64% industry average. Its 40.91% Return on Common Equity is 315.7% higher than the 9.84% industry average. Likewise, its 8.48% trailing-12-month net income margin is 101.9% higher than the industry average of 4.20%.
For the fiscal first quarter (ended March 31, 2023), ELA’s revenue increased 2.1% year-over-year to $48.39 million. The company’s gross profit increased 17.5% year-over-year to $11.41 million, and its EPS came at $0.09.
ELA’s revenue for the quarter ending September 30, 2023, is expected to increase by 14.8% year-over-year to $51.89 million. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 54.6% to close the last trading session at $7.56
ELA’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #6 in the Specialty Retailers industry. It has an A grade for Sentiment. To see the other ratings of ELA for Growth, Value, Momentum, Stability, and Quality, click here.
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AAN shares were trading at $14.63 per share on Friday afternoon, down $0.37 (-2.47%). Year-to-date, AAN has gained 25.00%, versus a 18.37% 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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