With a substantial reduction in inflationary pressures compared to the peaks of the previous year, there is a strong anticipation of an upswing in consumer spending. This shift is poised to have a significant positive impact on both the specialty retail industry and the companies operating within it.

Given the optimism, in this piece, I have discussed why three specialty retail stocks, The ODP Corporation (ODP), Murphy USA Inc. (MUSA), and Aeon Co., Ltd. (AONNY), could be better equipped to capitalize on the industry tailwind than GameStop Corp. (GME). Let us understand in detail.

Specialty retailer GME offers games and entertainment products via its stores and e-commerce platforms, serving customers in the United States, Canada, Australia, and Europe. Despite a marginal uptick in net sales compared to the previous year's quarter, the company incurred a net loss of $2.80 million and $0.01 per in its second quarter results.

Moreover, analysts predict GME’s revenue for the upcoming third quarter to decline marginally, while its EPS is expected to remain negative. On the profitability front, GME's gross profit margin of 23.82% is 33.3% lower than the industry average of 35.71%, while its net income and EBIT margins stand at negative 1.72% and 2.60%, respectively.

On the flip side, October witnessed no change in inflation from the previous month but recorded a 3.2% increase from the corresponding period a year ago. When excluding the influence of volatile food and energy prices, the core Consumer Price Index (CPI) experienced a 0.2% and 4% rise, contrary to the projected figures of 0.3% and 4.1%, respectively, representing the slightest increase since September 2021.

Furthermore, the worldwide specialty retailers market was valued at $23.20 billion in 2022 and is projected to achieve a value of $42.70 billion by 2031, demonstrating a CAGR of 4% spanning 2023 to 2031.

Considering the unfavorable fundamentals of GME and the promising outlook for the industry, investors seeking to leverage the positive industry trends might find ODP, MUSA, and AONNY as more viable options. To that end, let us examine the fundamentals of these Specialty Retailers stocks in detail, beginning with number three.

Stock #3: The ODP Corporation (ODP)

ODP provides business services and supplies, products, and digital workplace technology solutions for small, medium, and enterprise businesses in the United States, Puerto Rico, and the U.S. Virgin Islands. The company operates through four divisions: ODP Business Solutions; Office Depot; Veyer; and Varis.

On September 12, Office Depot, an ODP division, unveiled a fresh podcast series titled “Imagine Success.” This podcast series is accessible on the company’s website and major podcast platforms such as Spotify and Apple Podcasts.

“Imagine Success” will feature insightful discussions aimed at motivating entrepreneurs and offering valuable guidance across the diverse phases of a business’s evolution, from embarking on the entrepreneurial journey and establishing a brand to pinpointing funding sources, overcoming obstacles, and more.

The aim is to be a resource and partner for small business owners, offering them not only products and services but also knowledge and inspiration through the podcast to help them succeed in their ventures.

The stock’s trailing-12-month Return On Common Equity (ROCE) of 15.98% is 45.3% higher than the 10.99% industry average. Its trailing-12-month asset turnover ratio of 1.94x is 94.1% higher than the industry average of 1.00x. Furthermore, ODP’s trailing-12-month cash per share of $10.21 is 335.6% higher than the $2.34 industry average.

For the fiscal third quarter, which ended on September 30, 2023, ODP’s sales amounted to $2.01 billion, while its operating income grew 8.3% from the year-ago value to $91 million. The company’s net income and EPS came in at $70 million and $1.79, up 4.5% and 32.5% from the prior-year quarter, respectively.

Street expects ODP’s revenue and EPS for the fiscal fourth quarter (ending December 2023) to be $1.84 billion and $0.78, respectively. Moreover, its EPS is projected to improve by 12.3% per annum over the next five years. The company has an excellent surprise history, surpassing the revenue estimates in each of the trailing four quarters.

The stock has gained 16.7% over the six months to close the last trading session at $47.24.

ODP’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. 

It has a B grade for Growth, Value, and Quality. In the 42-stock Specialty Retailers industry, it is ranked #7. Click here to see ODP’s ratings for Momentum, Stability, and Sentiment. 

Stock #2: Murphy USA Inc. (MUSA)

MUSA engages in the marketing of retail motor fuel products and convenience merchandise. The company operates retail stores under the Murphy USA, Murphy Express, and QuickChek brands.

On October 26, MUSA declared a quarterly dividend of $0.41 per share, reflecting a 5.1% increase from the prior quarter’s dividend payable to its shareholders on December 1, 2023.

The company’s annual dividend of $1.64 translates to a 0.45% yield on the prevailing prices, while its four-year average dividend yield is 0.35%. Its dividend has grown at a CAGR of 83.7% over the past three years.

MUSA’s trailing-12-month ROCE of 65.15% is 492.6% higher than the 10.99% industry average. Its trailing-12-month asset turnover ratio of 4.64x is 364.6% higher than the industry average of 1.00x. Furthermore, the stock’s trailing-12-month cash per share of $5.87 is 150.4% higher than the $2.34 industry average.

MUSA’s total operating revenue for the third quarter (ended September 30, 2023) amounted to $5.79 billion, while its net income and EPS amounted to $167.70 million and $7.69, respectively. During the same period, the company’s cash and cash equivalents came in at $124.80 million, increasing significantly compared to $60.50 million as of December 31, 2022.

The consensus revenue estimate of $5.66 billion for the fiscal fourth quarter ending December 2023 reflects a 5.4% rise year-over-year. The consensus EPS estimate of $6.09 for the same period indicates a 16.3% year-over-year improvement.

Over the past nine months, the stock has surged 33.5% to close the last trading session at $363.94.

MUSA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.

It has a B grade for Value and Quality. Within the same industry, it is ranked #6. Click here to see the other ratings of MUSA for Growth, Momentum, Stability, and Sentiment.

Stock #1: Aeon Co., Ltd. (AONNY)

Headquartered in Chiba, Japan, AONNY operates in the retail industry through General Merchandise Store (GMS) Business; Discount Store Business; Supermarket (SM) Business; Health and Wellness Business; Financial Services Business; Shopping Center Development Business; Services and Specialty Store Business; International Business, and Other Business segments.

The stock’s trailing-12-month gross profit margin of 36.90% is 8.9% higher than the 33.89% industry average. Additionally, AONNY’s trailing-12-month cash per share of $9.39 is 420.7% higher than the $1.80 industry average.

For the six-month period, which ended on August 31, 2023, AONNY’s operating revenue increased 4.9% year-over-year to ¥4.71 trillion ($31.19 billion), while its gross profit rose 6.6% from the year-ago value to ¥1.17 trillion ($7.75 billion).  In addition, the company’s operating profit came in at ¥117.62 billion ($778.96 million), up 22.7% year-over-year.

Analysts expect AONNY’s revenue for the third quarter (ending November 2023) to be $15.13 billion. Moreover, the company surpassed its revenue estimates in each of the trailing four quarters, which is impressive.

AONNY’s shares have gained 5.5% over the past nine months to close the last trading session at $20.66.

It’s no surprise that AONNY has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth, Stability, and Quality. In the same industry, it is ranked #2.

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

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AONNY shares were trading at $20.64 per share on Friday afternoon, down $0.03 (-0.12%). Year-to-date, AONNY has declined -1.30%, versus a 19.08% rise in the benchmark S&P 500 index during the same period.

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