As society evolves, so do end-consumers’ preferences and requirements. Quick adaption to these changing consumer preferences by retailers is boosting the specialty retail industry’s growth prospects backed by cooling inflation, growing sales during the holiday season, higher disposable incomes, and technological advancements.

Given the industry’s tailwinds, it could be wise to invest in fundamentally sound specialty retailer stocks Upbound Group, Inc. (UPBD), NEXT plc (NXGPY), and Live Ventures Incorporated (LIVE) for solid returns.

Easing inflation has a strong bearing on consumers’ purchasing power. In October, inflation remained flat from the prior month, giving a hopeful sign that persistently high prices are losing their grip on the economy. The Consumer Price Index (CPI)  grew 3.2% from a year ago, below Wall Street’s estimate of 3.3% and down from 3.7% in September.

Consumer confidence rose in November following three consecutive monthly declines. According to the Conference Board, the Consumer Confidence Index (CCI) increased to 102 last month from a downwardly revised 99.1 in October. The improvement in consumers’ confidence in the economic situation results in a tendency to save less and spend more.

As per the National Retail Federation (NRF), holiday shoppers are anticipated to spend more this year. The retail group projects sales in November and December to grow by 3% to 4% year-over-year, translating to $957.30-$966.60 billion in spending during the shopping season. The NRF’s forecast excludes spending at automobile dealers, gasoline stations and restaurants.

The global specialty retailers market is projected to total $42.70 billion by 2031, growing at a CAGR of 4% during the forecast period (2023-2031). Increasing consumer demand and higher disposable incomes would boost the market’s growth and expansion.

Changing consumer preferences, growing urbanization, and a surge in the number of international brands are other vital factors fueling the specialty retail market. Also, the emerging trends of digital retailing will positively transform the market and improve consumers’ in-store and online experiences.

With these favorable trends in mind, let’s look at the fundamentals of the three best Specialty Retailers stocks, beginning with the third choice.

Stock #3: 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.

On December 6, UPBD’s Board of Directors approved an increase of approximately 9% in the quarterly cash dividend to $0.37 for the first quarter of 2024. The dividend will be paid on January 9, 2024, to the company’s common stockholders of record as of the close of business on December 19, 2023.

The dividend increase reflects the company’s robust capital structure and its ability to provide stable growth in the long run.

UPBD pays an annual dividend of $1.48, which translates to a yield of 4.78% at the current share price. Its four-year average dividend yield is 3.8%. Moreover, the company’s dividend payouts have increased at a CAGR of 5.5% over the past three years.

On November 13, UPBD announced the opening of a new Get It Now! store in Rhinelander, Wisconsin. Get It Now! store offers a flexible retail installment sales option for acquiring access to high-quality furniture, appliances, electronics, and computers.

UPBD’s trailing-12-month gross profit margin of 50.57% is 42.6% higher than the industry average of 35.47%. Likewise, the stock’s trailing-12-month levered FCF margin of 37.03% is significantly higher than the industry average of 5.18%.

For the third quarter that ended September 30, 2023, UPBD reported a total revenue of $979.10 million. Its Merchandise sales grew 5.5% year-over-year to $24.08 million. Its operating profit rose 56.6% from the year-ago value to $58.10 million. Also, the company’s EPS was $0.08, compared to a loss per share of $0.10 in the prior year’s quarter.

As per the updated guidance for the fiscal year 2023, UPBD expects its revenue to range between $3.95 billion and $4.00 billion. Its adjusted EBITDA, excluding SBC, is expected to range between $450 million and $460 million.

Street expects UPBD’s revenue and EPS for the first quarter (ending March 2024) to increase 2.2% and 7% year-over-year to $1.04 billion and $0.89, respectively. Also, the company has topped the consensus EPS and revenue estimates in all four trailing quarters, which is remarkable.

Shares of UPBD have gained 39.3% year-to-date and 30.9% over the past year to close the last trading session at $30.96.

UPBD’s solid fundamentals are reflected in its POWR Ratings. 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, each weighted to an optimal degree.

UPBD has a B grade for Quality, Growth, and Sentiment. It is ranked #8 out of 44 stocks in the Specialty Retailers industry.

In addition to the POWR Ratings we’ve stated above, we also have UPBD ratings for Value, Momentum and Stability. Get all UPBD ratings here.

Stock #2: NEXT plc (NXGPY)

Headquartered in Enderby, the United Kingdom, NXGPY is involved in the retailing of clothing, beauty, footwear, and home products internationally. The company operates through NEXT Retail; NEXT Online; NEXT Finance; Total Platform; Joules; Property Management; and International Retail, Sourcing, and Other segments.

On December 3, NXGPY announced the dividend payment of £0.66 ($0.83) per share on January 3, 2024. Based on this dividend payment, the dividend yield on the company’s stock will be 2.6%, indicating an attractive boost to shareholder returns. Also, its dividend payouts have increased at a CAGR of 7.2% over the past three years.

NXGPY’s trailing-12-month gross profit margin and EBIT margin of 44.76% and 18.57% are 26.2% and 148.8% higher than the industry averages of 35.47% and 7.47%, respectively. In addition, the stock’s trailing-12-month net income margin of 13.63% is considerably higher than the industry average of 4.52%.

NXGPY’s revenue and EBITDA have grown at respective CAGRs of 12.9% and 19.4% over the past three years. The company’s EBIT has increased 23.5% over the same timeframe, while its net income and EPS have improved at CAGRs of 28.6% and 30.7%, respectively.

According to the third-quarter trading statement released on November 1, 2023, NXGPY’s full price sales increased 4% over last year, £23 million ($28.95 million) ahead of its guidance which was to be up 2%. The company also raised its full-year guidance for profit before tax by £10 million ($12.59 million) to £885 million ($1.11 billion).

For the full year, NXGPY expects full price sales to be £4.74 billion ($5.97 billion), an increase of 3.1% compared to last year. Its pre-tax EPS (before exceptionals) is expected to be 730.20p, up 4.1% from the prior year.

For the first half, which ended July 29, 2023, NXGPY’s revenue increased 5.7% year-over-year to £2.52 billion ($3.17 billion), while its gross profit rose 10.9% from the year-ago value to £1.10 billion ($1.38 billion). The company’s operating profit was £452.5 million ($569.65 million), up 4.2% from the previous year’s period.

Analysts expect NXGPY’s revenue for the fiscal year (ending January 2024) to grow 1.9% year-over-year to $6.80 billion. Similarly, for the fiscal year 2025, the consensus revenue estimate of $7.20 billion indicates a 6% year-over-year increase.

Over the past six months, the stock has gained 22% and 46.5% year-to-date to close the last trading session at $49.83.

NXGPY’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

The stock has an A grade for Quality and a B for Stability. Within the same industry, NXGPY is ranked #5 of 44 stocks.

Click here to access additional ratings of NXGPY for Growth, Value, Momentum and Sentiment.

Stock #1: Live Ventures Incorporated (LIVE)

LIVE engages in the flooring, steel manufacturing, and retail businesses. The company operates through segments:  Flooring Manufacturing; Steel Manufacturing; Retail; and Corporate and Other.

On October 12, LIVE submitted a proposal to acquire 100% of LL Flooring shares in an all-cash offer for $5.85 per share, representing a 106% premium to the company’s closing share price as of October 6, 2023. Live Ventures’ experience in the retail and flooring industries and impressive track record of shareholder value creation makes it an ideal partner for LL Flooring.

On September 21, LIVE’s subsidiary, Marquis Industries, Inc., acquired the Harris Flooring Group® brands from Q.E.P. Co., Inc., a designer, manufacturer, and distributor of a broad range of flooring and installation solutions for commercial and home improvement projects.

“As part of the growth strategy for our flooring manufacturing segment, we are excited to announce the acquisition of the Harris Flooring Group by our subsidiary, Marquis Industries,” said Jon Isaac, President and Chief Executive Officer of Live Ventures.

During the third quarter that ended June 30, 2023, LIVE’s revenue grew 34.1% year-over-year to $91.52 million. The company’s gross profit increased 43.9% year-over-year to $32.17 million. Its adjusted EBITDA was $9.57 million, up 8.3% from the previous year’s period.

Furthermore, the company’s total assets came in at $360.17 million as of June 30, 2023, compared to $278.64 million as of September 30, 2022.

Analysts expect LIVE’s revenue for the fiscal 2024 first quarter (ending December 2023) to increase 50.8% year-over-year to $104 million, while the consensus EPS estimate of $1.44 indicates a rise of 140% year-over-year.

LIVE’s stock has surged marginally over the past six months and 2.6% over the past year to close the last trading session at $25.41.

LIVE’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

The stock has a B grade for Growth, Sentiment, and Value. LIVE is ranked #4 of 44 stocks in the Specialty Retailers industry.

Click here to access LIVE’s additional ratings for Momentum, Quality, and Stability.

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NXGPY shares were unchanged in premarket trading Thursday. Year-to-date, NXGPY has gained 31.15%, versus a 20.46% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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