SBH: 3 Specialty Retail Stocks Thriving in the Digital Era

Specialty retailers, focusing on niche markets and tailored customer experiences, have emerged as winners in this evolving ecosystem. By leveraging data analytics, personalized marketing, and streamlined online platforms, these companies are carving out a unique space amid intense competition.

Given the industry’s robust prospects, investors could consider buying fundamentally sound specialty retailers stocks, The ODP Corporation (ODP), Torrid Holdings Inc. (CURV), and Sally Beauty Holdings, Inc. (SBH) thriving in this digital era.

One key factor driving growth in specialty retail is the rise of direct-to-consumer (DTC) models. By bypassing traditional retail channels, the companies in this sector can offer competitive pricing and maintain control over the customer experience. This approach also allows them to respond quickly to shifting consumer preferences, making them more resilient to market disruptions.

Also, the brands’ direct oversight of their supply chains harmonizes with the growing consumer demand for sustainability and ethical manufacturing, enhancing its appeal to a conscientious customer base.

The global specialty retailers market is anticipated to reach $42.7 billion by 2031, exhibiting a CAGR of 4%, driven by increasing consumer demand, higher disposable income, transformative digital retailing, and changing consumer profiles and demographics.

Considering these favorable trends, let’s take a closer look at the fundamentals of the three Specialty Retailers picks, beginning with the third.

Stock #3: The ODP Corporation (ODP)

ODP offers business services and supplies, products, and digital workplace technology solutions for small, medium, and enterprise businesses. The company operates through four divisions: ODP Business Solutions; Office Depot; Veyer; and Varis.

2024 STOCK MARKET OUTLOOK

On December 4, OPD’s operating company, Office Depot, announced that it signed a new agreement with Verizon, a renowned telecommunications and technology provider. This agreement aims to provide small and medium-sized businesses and consumer customers with a seamless shopping experience for Verizon products and services within Office Depot and OfficeMax stores.

In the initial phase, the stores will be launched in California and Illinois. Also, the agreement enhances Office Depot’s commitment and vision.

In terms of forward non-GAAP P/E, ODP is trading at 6.91x, 59.1% lower than the industry average of 16.89x. Likewise, the stock’s forward EV/Sales and Price/Sales multiples of 0.22 and 0.10 are 82.7% and 89.6% lower than their respective industry averages of 1.28 and 0.93.

For the third quarter of 2024, which ended on September 28, ODP’s sales amounted to $1.78 billion, while the operating income stood at $102 million. Its net income was valued at $58 million, and its EPS came in at $1.73.

The company has updated its fiscal year 2024 financial guidance, where its sales projection is approximately $7 billion, and its adjusted EBITDA in the range of $260 million to $300 million. Additionally, its adjusted EPS guidance is expected to be in the range of $3.10 to $3.80.

Analysts expect ODP’s revenue and EPS for the fiscal year (ended December 2024) to be $6.98 billion and $3.23, respectively. For the fiscal year 2025, its revenue is expected to be $6.79 billion, while its EPS is forecasted to settle at $3.90, indicating a 20.9% improvement over the prior year.

Shares of ODP have surged 4.2% year-to-date to close the last trading session at $23.69.

ODP’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates 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.

ODP has an A grade for Value and a B for Quality. It is ranked #11 out of 38 stocks in the Specialty Retailers industry. Click here to see the additional ratings for ODP (Growth, Momentum, Stability, and Sentiment).

Stock #2: Torrid Holdings Inc. (CURV)

CURV is a direct-to-consumer brand of apparel, intimates, and accessories that involve tops, bottoms, dresses, denim, activewear, intimates, sleepwear, swimwear, and outerwear products; and non-apparel products comprising accessories, footwear, and beauty products. The company designs, develops, and merchandises its products under the brand names like Torrid, Torrid Curve, CURV, and Lovesick.

In terms of forward EV/Sales, CURV is trading at 0.94x, 26.6% lower than the industry average of 1.28x. Likewise, the stock’s forward EV/EBITDA and Price/Cash Flow multiples of 9.71 and 10.07 are 6.1% and 7% lower than the industry averages of 10.34x and 10.83x, respectively.

In the fiscal third quarter that ended on November 2, 2024, CURV’s net sales were reported to be $263.77 million. The company reported gross profit of $95.16 million, indicating a 4% growth from the prior-year quarter. Its income from operations came in at $7.20 million, up 4.6% year-over-year, while its adjusted EBITDA grew marginally from the prior-year quarter to $19.58 million.

Street expects CURV’s revenue for the fiscal year (ending January 2025) to be $1.09 billion. Its EPS for the same period is expected to register a 14.6% growth from the prior year, settling at $0.13.

CURV’s shares have surged 46.3% over the past three months and 28.5% over the past month to close the last trading session at $5.72.

CURV’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It also has a B grade for Quality. Within the Specialty Retailers industry, it is ranked #10. Click here to see CURV’s ratings for Growth, Value, Momentum, Stability, and Sentiment.

Stock #1: Sally Beauty Holdings, Inc. (SBH)

SBH operates as an international specialty retailer and distributor of professional beauty supplies. The company operates through two segments: Sally Beauty Supply and Beauty Systems Group.

In terms of forward non-GAAP P/E, SBH is trading at 6.06x, which is 64.1% lower than the industry average of 16.89x. The stock’s forward Price/Sales ratio of 0.30x is 67.3% below the industry average of 0.93x. Also, its forward EV/Sales multiple of 0.70 compares to the industry average of 1.28x.

During the fiscal fourth quarter that ended on September 30, 2024, SBH’s net sales increased marginally year-over-year, amounting to $935.03 million. Its gross profit amounted to $479.20 million, increasing 2.7% year-over-year.

Its operating earnings improved by 7% from the prior year’s value to $82.27 million. In addition, the company’s non-GAAP net earnings rose 14.5% from the year-ago value to $52.33 million, while its EPS stood at $0.50, up 19% year-over-year.

The consensus revenue estimate of $943.78 million for the fiscal first quarter (ended December 2024) represents a marginal increase year-over-year. The consensus EPS estimate of $0.43 for the ongoing quarter indicates a 10.7% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.

The stock has gained 5.5% year-to-date to close the last trading session at $11.02.

It’s no surprise that SBH has an overall rating of B, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality. Out of 38 stocks in the same industry, SBH is ranked #9.

Beyond what is stated above, we’ve also rated SBH for Growth, Momentum, Stability, and Sentiment. Get all SBH’s ratings here.

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SBH shares were trading at $10.97 per share on Tuesday afternoon, down $0.05 (-0.45%). Year-to-date, SBH has gained 4.98%, versus a -1.01% rise in the benchmark S&P 500 index during the same period.