The retail sector is poised for significant growth, thanks to the adoption of new trends and technologies and increased consumer spending. As retail stocks Ulta Beauty (ULTA) and DICK’S Sporting Goods (DKS) prepare to unveil their fourth-quarter earnings soon, let’s analyze whether to buy, hold or sell these stocks ahead of earnings. Read on.
Increasing disposable income, retailers’ increased focus on enhancing personalized customer experience, and the integration of advanced technologies are set to keep the retail sector resilient for the foreseeable future.
Specialty Retailer Ulta Beauty, Inc. (ULTA) and sporting goods retailer DICK’S Sporting Goods, Inc. (DKS) will release fourth-quarter results on March 14, 2024. Street expects ULTA’s revenue and EPS for the fiscal fourth quarter of 2023 (ending January 2024) to be $3.53 billion and $7.54 , up 9.3% and 12.8% on an annual basis. -year, respectively. Likewise, DKS’s revenue and EPS for the same quarter are expected to increase 5.4% and 14.8% year-over-year to $3.79 billion and $3.36, respectively.
Given this backdrop, retail stocks ULTA and DKS should be kept on your watch list for better entry opportunities. But first, let’s take a quick look at the sector landscape before delving into the fundamentals of the two stocks.
With the shift to e-commerce over the years, the retail industry has grown significantly, helping retailers reach their potential customers globally and access a vast online market, allowing retailers to diversify its customer base and become independent from local markets. Additionally, retailers have the ability to run their businesses 24/7 without the limitations of traditional store hours, while consumers can shop whenever they want and at their convenience.
The CNBC/NRF Retail Monitor, derived from actual credit card spending data from Affinity Solutions, in February it increased by 1.06% month-on-month. Sporting Goods, Hobbies, Music and Bookstores increased 2.29% on a seasonally adjusted month-over-month basis and 13.67% year-over-year.
Specialty retailers will benefit significantly from rising consumer spending, easing inflation, rising disposable income and the presence of attractive credit alternatives. Anticipating a change in monetary policy, with forecasts of rate cuts from the Federal Reserve, specialty retailers remain in a promising position for expansion. THE global specialty retailer market it is expected to be worth $42.7 billion by 2031, growing at a CAGR of 4%.
Additionally, increased attention to physical and mental health has fueled a strong comeback for the sports sector post-pandemic, increasing participation in outdoor activities such as camping, fishing, surfing, skiing, golf and skateboarding. This should support the recreational industry and sporting goods retail sector. As a result, the global sports equipment and apparel market is estimated to reach $1.03 trillion by 2030, growing at a rate CAGR of 7.4%.
Furthermore, the integration of AI into retail operations has improved customer experience by providing them with personalized products, along with search engine optimization and the implementation of automatic replenishment systems. AI is expected to have a substantial impact on operations with product recommendations, inventory management, order fulfillment, and customer service interactions. In addition to focusing on reducing costs, retailers are considering doing so invest in new artificial intelligence capabilities in 2024.
With these favorable trends in mind, let’s analyze the fundamentals of the two retail stock picks.
Actions to take:
Ulta Beauty, Inc. (ULTA)
ULTA is a beauty retailer offering cosmetics, fragrances, hair and skin care products, and related accessories and services in the United States
During the third quarter of 2023, ULTA repurchased 686,689 shares of its common stock for $281.50 million. During the first nine months of fiscal 2023, the company repurchased 1.80 million shares of common stock for $840.50 million. As of October 28, 2023, $259.40 million remained available under the $2 billion share repurchase program announced in March 2022.
ULTA’s trailing 12-month EBIT and net income margins of 14.78% and 11.37% are 95.4% and 140.3% higher than industry averages of 7.57% and by 4.73%, respectively. However, the actions cash per share of $2.50 is 3.4% lower than the industry average of $2.59.
During the fiscal third quarter ended October 28, 2023, ULTA’s net sales and gross profit increased 6.4% and 3% year-over-year to $2.49 billion and $992.07 million, respectively .
Furthermore, the company’s net income and net earnings per common share stood at $249.48 million and $5.07, respectively. As of October 28, 2023, ULTA’s total current assets were $2.79 billion, compared to $2.75 billion as of October 29, 2022.
Street expects ULTA’s revenue and EPS for the fiscal year (ending January 2024) to increase 9.5% and 6.4% year-over-year to $11.17 billion and $25.55, respectively . The company has surpassed consensus estimates for revenue and EPS in each of the trailing four quarters, which is impressive.
The stock gained 34.1% over the past six months to close the latest trading session at $555.57. In the last nine months it has gained 30.8%.
ULTA’s contrasting fundamentals are reflected in its own POWR Ratings. The stock has an overall rating of C, equivalent to Neutral in our proprietary rating system. POWR Ratings are calculated by considering 118 distinct factors, each optimally weighted.
The stock has a grade of C for stability and sentiment. Inside class C Specialized retailers sector, ULTA ranks 27th out of 41 stocks.
To view additional POWR Ratings for Growth, Value, Momentum, and Quality for ULTA, Click here.
DICK’S Sporting Goods, Inc. (DKS)
DKS is a sporting goods retailer primarily in the United States. The company provides hardline products, including sporting goods equipment, fitness equipment, golf equipment, and hunting and fishing gear products; clothing; and footwear and accessories.
On February 28, DKS released its new e-commerce advertising campaign titled “Click On DICKS.com,” starring actors Will Arnett and Kathryn Hahn, and produced in collaboration with creative agency Juxtapose Studio.
The campaign offers a seamless and hassle-free shopping experience on DICKS.com and highlights DKS as the definitive online shopping destination for activewear, footwear and athletic equipment. With this campaign, DKS reminded its customers that the exceptional service, unique offers and wide assortment found in its physical stores are also available online at any time.
On January 24, Maxfli, a distinguished golf brand with a century-long legacy of performance and quality, announced its exclusive golf ball sponsorship agreement with professional golfer Lexi Thompson. The Maxfli Tour ball is part of the Maxfli Tour series, sold exclusively by DKS and Golf Galaxy.
This partnership represents an important milestone as Thompson commits to playing and supporting Maxfli Tour Series golf balls through the 2024 season, which could increase DKS sales.
DKS pays an annual dividend of $4 per share, which translates to a dividend yield of 2.22% on the current share price. Its four-year average return is 3.44%. DKS’s dividend payments have grown at a CAGR of 47.4% and 34.8% over the past three and five years, respectively.
DKS’ trailing 12-month cash from operations of $1.65 billion is 500.6% higher than the industry average of $274.87 million. However, the stock’s gross profit margin of 34.41% is 3.6% lower than the industry average of 35.71%.
For the fiscal third quarter ended October 28, 2023, DKS net sales increased 2.8% year-over-year to $3.04 billion. For the same quarter, non-GAAP net income and non-GAAP earnings per share were $239.95 million and $2.85, up 5% and 9.6%, respectively, from the quarter of the previous year.
For the nine months ended October 28, 2023, cash and cash equivalents at the end of the period were $1.41 billion. As of October 28, 2023, DKS’s total current assets were $4.94 billion, compared to $4.99 billion as of October 29, 2022.
Analysts expect DKS’s revenue and EPS for the fiscal year (ending January 2024) to increase 4.3% and 3.3% year-over-year to $12.90 billion and $12.43, respectively. dollars. Additionally, the company has surpassed consensus estimates for revenue and EPS in three of the trailing four quarters.
For the fiscal first quarter ending in April 2024, Street expects the company’s revenue to increase 2.2% year-over-year to $2.90 billion. However, its EPS is expected to decline 10.2% year-over-year to $3.05 for the same quarter.
The stock gained 64.8% over the past six months to close the latest trading session at $182.25. In the last nine months it has gained 34.6%.
DKS’s mixed outlook is reflected in its POWR Ratings. The stock has an overall rating of C, equivalent to Neutral in our proprietary rating system.
DKS has a C grade for Growth, Value, Stability and Sentiment. Inside the Athletics and recreational activities sector, is in 10th place out of 34 titles.
In addition to the above, we also evaluated the stock in terms of momentum and quality. Get all DKS ratings Here.
What to do next?
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ULTA shares were unchanged in premarket trading Wednesday. Year to date, ULTA has gained 13.38%, compared to an 8.72% gain in the benchmark S&P 500 index over the same period.
About the author: Neha Panjwani
Since her school days, Neha had a deep fascination for finance, a passion that pushed her towards a career as an investment analyst after completing her bachelor’s degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her understanding of investment fundamentals. Neha’s primary focus is to help retail investors identify optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a focus on stocks and ETFs. She is committed to empowering people to make informed and strategic investment decisions in the dynamic world of finance.
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