A substantial uptick in consumer spending, stabilization of supply chains, increasing urbanization, and the growing integration of technology should help the specialty retailers industry thrive this year.

Thus, fundamentally sound specialty retailer stocks Best Buy Co., Inc. (BBY), Murphy USA Inc. (MUSA), and Build-A-Bear Workshop, Inc. (BBW) could be solid additions to your portfolio.

Inflation posted the smallest increase in more than two years in June. The Consumer Price Index (CPI) rose just 0.2% for the month and was up 3% year-over-year. That compared with Dow Jones estimates for respective increases of 0.3% and 3.1%.

Moreover, Americans bumped up their spending in June as inflation eased considerably and the labor market remained resilient.

The Commerce Department reported that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.5% after gaining 0.2% in May. Robust consumer spending should bode well for the specialty retailers industry.

According to Growth Market Reports, the global specialty retailers market size is expected to reach $42.70 billion by 2031, growing at a CAGR of 4% during the forecast period of 2023-2031. Growing consumer demand, higher disposable income, rapid urbanization, and evolving customer preferences should fuel the market’s growth.

Furthermore, digital retailing transforms the in-store experience by leveraging technology and providing a seamless shopping experience. For instance, AI automates and adds value to traditional retail operations. From in-store assistance, product categorization to inventory tracking, supply chain management, and logistics, the role of AI in the industry is remarkable.

Amid the backdrop, quality specialty retailer stocks BBY, MUSA, and BBW could be solid additions to your portfolio. These stocks are B (Buy) rated in our proprietary POWR Ratings system.

Let’s take a closer look at the fundamentals of these stocks:

Best Buy Co, Inc. (BBY)

BBY provides a retail platform for a wide range of products across categories, such as consumer electronics, mobile phones, fitness products, daily-use appliances, software, and others. The company sales channel comprises both online and offline modes. It operates in two segments: Domestic and International.

On June 27, BBY unveiled a new suite of membership options, “My Best Buy Memberships,” which includes three tiers and will enable the customers to select a plan that will meet their custom requirements.

Apart from this, My Best Buy Plus and My Best Buy Total members will have access to greater benefits such as deeper discounts, rewards, flexible financing options, and others for their purchases at Best Buy. Such developments showcase the increased demand for the company’s products and services, driving its revenue stream.

BBY’s revenues were reported to be $9.46 billion for the first quarter that ended April 29, 2023. Its cash and cash equivalents were $1.03 billion as of April 29, 2023, compared to $640 million as of April 30, 2022. The company’s current liabilities reduced to $7.91 billion versus $8.64 billion as of April 30, 2022.

The consensus EPS estimate of $6.85 for the next fiscal year (ending January 2025) reflects a 12.7% year-over-year improvement. Analysts expect BBY’s EPS to grow 3.4% per annum over the next five years. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all four trailing quarters.

BBY’s shares have increased by 10.2% over the past three months and 4.6% over the past year to close the last trading session at $79.83.

BBY’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

BBY has a B grade for Value and Quality. Out of the 43 stocks in the Specialty Retailers industry, it is ranked #13.

To see the other ratings of BBY for Momentum, Stability, Growth, and Sentiment, click here.

Murphy USA Inc. (MUSA)

MUSA is a major marketer and distributor of motor fuel and other finished products to wholesalers and customers. The company operates retail stores under the Murphy USA, Murphy Express, and QuickChek brands. It runs more than 1,700 retail gasoline stores located primarily in the Southeast, Southwest, and Midwest United States.

On May 4, MUSA’s Board of Directors declared a quarterly cash dividend on the common stock of $0.38 per share, reflecting a 3% increase from the previous quarter.

The dividend was paid on June 1, 2023, to stockholders of record as of May 15, 2023. The company’s annual dividend of $1.52 per share translates to a 0.51% yield, while its four-year average yield is 0.32%.

Also, on May 3, MUSA’s Board of Directors authorized a share repurchase of up to $1.5 billion to begin upon completion of the current $1 billion authorization and to be executed by December 31, 2028.

The new share repurchase authorization reaffirms the company’s commitment to supplement organic growth initiatives with shareholder distributions, including its dividend growth plan, to maximize value creation over time.

During the second quarter that ended June 30, 2023, MUSA reported total operating revenues of $5.58 billion, and its merchandise sales grew 5.5% year-over-year to $1.05 billion. Its total retail fuel contribution was $334.70 million, up 4.3% year-over-year.

Furthermore, as of June 30, 2023, the company’s cash and cash equivalents stood at $92.90 million, compared to $60.50 million as of December 31, 2022.

Analysts expect MUSA’s revenue for the fiscal year (ending December 2024) to increase 1% year-over-year to $22.09 billion. The company’s EPS for the ongoing year is expected to grow 2.9% from the prior year to $22.23. Moreover, the company topped the consensus EPS estimates in three of the trailing four quarters, which is impressive.

Shares of MUSA have gained 5.5% over the past three months and 10.3% year-to-date to close the last trading session at $300.60.

MUSA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to Buy in our proprietary rating system.

MUSA has a B grade for Value and Quality. Among the 43 stocks in the same industry, it is ranked #12. Click here to see the other ratings of MUSA for Momentum, Sentiment, Growth, and Stability.

Build-A-Bear Workshop, Inc. (BBW)

BBW is a global multi-channel retailer of plush animals and related products. The company’s segments include Direct-to-Consumer; Commercial; and International Franchising. It operates its stores under the Build-A-Bear Workshop brand name; and sells its products through its e-commerce sites and third-party marketplace sites.  

On July 7, BBW, in collaboration with Barbie, launched their much-awaited Barbie collection, the highlight being the Barbie Pink Bear with its bright pink fur and special paw pads. Apart from this, customers will also be able to custom-fit the new teddy bear with an assortment of accessories.

Such exciting additions to their existing catalog should increase the demand for their products, extending customer reach and boosting profitability.

On April 27, Build-A-Bear Entertainment, BBW’s subsidiary, and Odd Dot, a division of Macmillan, signed a partnership to develop a wide array of books based on the large number of characters and stories associated with the Build-A-Bear brand.

According to Sharon Price John, BBW’s President and CEO, “Storytelling and creativity have always been at the center of the Build-A-Bear experience, each personalized furry friend created by our guests celebrates unique stories, and our partnership with Macmillan, allows us to share new ways for guests to interact with their beloved and favorite Build-A-Bear characters by bringing them to life through stories, books and activities.”

BBW’s total revenue increased marginally year-over-year to $120.10 million in the first quarter (ended April 29, 2023), while its gross profit grew 4.9% from the year-ago value to $64.9 million. Its gross profit margin was 54.1% compared to 52.5% in the first quarter of 2022. The company’s EBITDA was $22.40 million, up $4.2% year-over-year.

In addition, the company’s net income and EPS amounted to $14.6 million and $0.98, representing increases of 2.9% and 10.1% from the prior-year corresponding quarter, respectively.

Analysts expect BBW’s EPS for the fiscal year (ending January 2024) to increase 20.1% year-over-year to $3.70. Likewise, the consensus revenue estimate of $489.57 million for the current year indicates a 4.6% rise year-over-year.

BBW’s stock has gained 13.9% over the past month and 62.2% over the past year to close the last trading session at $24.14.

It’s no surprise that BBW has an overall rating of B, which equates to Buy in our proprietary rating system.

BBW has an A grade for Quality. In the Specialty Retailers industry, it is ranked #9 out of 43 stocks.

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

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BBY shares were trading at $79.73 per share on Monday afternoon, down $0.10 (-0.13%). Year-to-date, BBY has gained 1.80%, versus a 18.60% 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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