Currently, the outlook for GameStop Corp. (GME) appears unfavorable due to its bleak financial performance and poor growth prospects. However, it’s worth exploring whether specialty retailers Murphy USA Inc. (MUSA) and Sally Beauty Holdings, Inc. (SBH) could be better investment choices. Let’s examine this in detail.

GME is a specialty retailer that offers games and entertainment products through brick-and-mortar stores and e-commerce platforms. Shares of GME have experienced a 4.6% plunge over the past month and a 30% decline over the past year, closing its last trading session closing at $22.70.

During the fiscal first quarter that ended April 29, 2023, GME’s net sales decreased 10.3% year-over-year to $1.24 billion. Its gross profit declined 3.8% from the year-ago value to $287.30 million. Moreover, the company registered a net loss and loss per share of $50.50 million and $0.17 during the period.

In addition, GME’s revenue for the fiscal year ending January 2024 is expected to decrease 3.7% year-over-year to $5.71 billion. Streets also expect the company to report a loss per share of $0.26 for the current fiscal year. Furthermore, GME missed its revenue estimates in three of the trailing four quarters, which is disappointing.

While fundamentally weak GME may be facing challenges, not all specialty retailer companies are expected to perform poorly. This is because the sector is faring well due to increased retail sales and enhanced consumer confidence.

Despite the high-interest rates, the Conference Board’s monthly Consumer Confidence Index climbed to 117 in July, up from 110.1 the previous month. This marks the third consecutive monthly increase, surging even higher following a significant upswing in June.

Retail spending, adjusted for seasonality, continued its positive trend, rising 0.2% in June for the third consecutive month. Compared to the previous year, overall retail sales increased by 1.5%. These figures indicate that consumers are still willing to spend despite higher interest rates, persistent inflation, and lingering economic uncertainty.

Moreover, increasing consumer demand, greater disposable income, urbanization, and the growing prevalence of international brands are driving the demand for specialty retail goods. Additionally, the market is set to be further fueled by the implementation of digital retailing, which utilizes technology to create a seamless in-store shopping experience.

According to Growth Market Reports, the global specialty retailers market size is expected to grow at a CAGR of 4% and reach $42.73 trillion by 2031.

Let’s now take a look at MUSA and SBH to see how well-positioned they are to capitalize on the industry’s prospects.

Murphy USA Inc. (MUSA)

MUSA operates a chain of retail stores and markets motor fuel products and merchandise. It also manages non-fuel convenience stores and holds certain product supply and wholesale assets such as product distribution terminals and pipeline positions.

On May 4, MUSA declared a quarterly dividend of $0.38 per share, or $1.52 per share on an annualized basis, on the common stock. The payment represents an increase of 3% from the previous quarter and is payable on June 1, 2023, to stockholders of record on May 15, 2023.

MUSA pays a $1.52 per share dividend annually, which translates to an 0.48% yield on the current price level. Its four-year average dividend yield is 0.31%.

Moreover, on May 2, MUSA authorized a new share repurchase of up to $1.5 billion, which will follow the current $1 billion authorization and be executed by December 31, 2028. This reaffirms MUSA’s commitment to maximize value creation over time through shareholder distributions and organic growth initiatives.

For the fiscal first quarter that ended March 31, 2023, MUSA’s revenue from merchandise sales increased 8.3% year-over-year to $966.20 million. Its other operating revenues grew 49.7% from the year-ago value to $116.80 million.

As of March 31, 2023, the company’s cash and cash equivalents stood at $102.10 million, compared to $60.50 million as of December 31, 2022.

The consensus revenue estimate of $22.03 billion for the fiscal year (ending December 2024) reflects a marginal year-over-year improvement. Likewise, the consensus EPS estimate of $23.76 for the same period indicates a 4.4% rise year-over-year. Moreover, the company topped the consensus revenue estimates in all four trailing quarters, which is impressive.

Over the past six months, the stock has gained 14.9% to close the last trading session at $307.80.

MUSA’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

MUSA has a B grade for Value and Quality. It is ranked #10 in the 42-stock Specialty Retailers industry.

In addition to the POWR Ratings I’ve just highlighted, you can see MUSA’s ratings for Growth, Stability, Sentiment, and Momentum here.

Sally Beauty Holdings, Inc. (SBH)

SBH is an international specialty retailer and distributor of professional beauty supplies. The company conducts its business through two segments, Sally Beauty Supply; and Beauty Systems Group.

During its fiscal first quarter release, SBH reported the launch of its first ‘Studio By Sally’ concept store in the Dallas/Ft. Worth market. The innovative, digital-first, and DIY-centric salon represents the company’s dedication to customer satisfaction, long-term growth, and shareholder value.

SBH aims to achieve these goals by prioritizing customer centricity, expanding high-margin-owned brands, fostering innovation, and optimizing operational efficiency and capabilities.

Furthermore, on February 1, SBH announced the successful initial launch of Bondbar, a pro-quality line of hair care bonding solutions. Encouraged by consumer acclaim, the company is now expanding the lineup with more products to cater to diverse needs, further elevating the brand’s reputation.

With rave reviews and accessible pricing, the move aims to strengthen market position, increase customer retention, and capitalize on consumer demand for specialized solutions.

During the fiscal 2023 second quarter that ended March 31, SBH’s net sales marginally increased year-over-year to $918.71 million. Its non-GAAP operating free cash flow rose 150.8% from the year-ago value to $7.52 million.

Moreover, as of March 31, 2023, the company’s current assets stood at $1.21 billion, compared to $1.13 billion as of September 30, 2022. Its total assets amounted to $2.68 billion, compared to $2.58 billion as of December 31, 2022.

Analysts expect SBH’s revenue to grow 1.9% year-over-year to $3.84 billion for the fiscal year ending September 2024. The company’s EPS for the same period is expected to grow 11.2% from the previous year to $2.10. Moreover, the company surpassed its consensus revenue estimates in all of the four trailing four quarters.

SBH has gained 3.1% over the past month to close the last trading session at $12.40.

SBH’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.

SBH has a B grade for Value and Quality. It is ranked #14 out of 42 stocks in the Specialty Retailers industry.

Click here to access additional SBH ratings (Growth, Stability, Sentiment, and Momentum). 

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GME shares were trading at $22.85 per share on Thursday afternoon, up $0.15 (+0.66%). Year-to-date, GME has gained 23.78%, versus a 20.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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