Optimistic economic outlook, recent interest rate cuts, and increasing consumer confidence have strongly fueled consumer spending. Also, a buoyant job market has strengthened consumer spending power and disposable income scale, indicating further growth in consumption.

Therefore, it could be the right time to invest in solid consumer discretionary stocks Burlington Stores, Inc. (BURL), HNI Corporation (HNI), and American Outdoor Brands, Inc. (AOUT), having high growth potential.

Amid signs of moderating inflation and optimistic economic growth, the Federal Open Market Committee lowered its key overnight borrowing rate by a half percentage point or 50 basis points. The decision slashed the federal funds rate to a range between 4.75% - 5%. The rate benefits many consumer products such as mortgages, auto loans, and credit cards.

This much-anticipated rate cut further strengthens consumer spending power and boosts the economy. During the second quarter of 2024, personal consumption expenditures represented around 68% of the U.S. GDP. Another indication of strong spending in the economy is the total U.S. credit card debt, which exceeded $1 trillion this year, setting a record high.

Further, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers increased 0.2% on a seasonally adjusted basis in September, at same levels in August and July. On a year-over-year period, CPI rose by 2.4%, slightly higher than expected. This brings the levels closer to the Federal Reserve’s target of 2%.

Besides, a solid job market, low unemployment, lower interest rates, and high business investments are supporting consumer spending. In 2024, real consumer spending is expected to increase by 2.4%, where spending on durable goods will rise by 1.6%, and spending on non-durable goods will be up by 1.7%.

Amid this, consumers are likely to lean and spend on segments like fashion & luxury goods, home improvement and renovation, and recreation. Thus, considering the industry’s optimistic outlook, investors could consider investing in fundamentally sound consumer discretionary stocks BURL, HNI, and AOUT.

Burlington Stores, Inc. (BURL)

BURL is a branded merchandise retailer. It offers fashion-focused merchandise, like women's ready-to-wear apparel, menswear, youth apparel, footwear, accessories, toys, gifts, and coats, baby, home, and beauty products. The company operates stores under the Burlington Stores and Cohoes Fashions brand names.

BURL’s revenue and EBITDA have grown at respective CAGRs of 7% and 2.2% over the past three years. The company’s normalized net income has increased by 1.2% over the same timeframe, while its tangible book value and total assets have improved at CAGRs of 26.2% and 3.8%, respectively.

For the second quarter that ended August 3, 2024, BURL’s total revenue increased 13.4% year-over-year to $2.46 billion. The company’s adjusted EBITDA grew 43.3% from the year-ago value to $201.84 million. Its adjusted net income of $77.49 million and $1.20 per share indicates 99.3% and 100% growth from the previous year’s quarter, respectively.

Furthermore, the company’s total assets were $7.82 billion as of August 3, 2024, compared to $6.91 billion as of July 29, 2023.

For the full fiscal year 2024, the company expects its total sales to increase between 9% and 10% year-over-year, and based on these estimates, comparable store sales are expected to increase in the range of 2% to 3% from the prior year. BURL also plans to open approximately 100 net new stores in the year. Also, its adjusted EPS is set in the range of $7.66 to $7.96.

Analysts expect BURL’s revenue and EPS for the third quarter (ending October 2024) to increase 11.5% and 58.2% year-over-year to $2.55 billion and $1.55, respectively. Further, the company has topped consensus EPS and revenue estimates in three of the trailing four quarters.

Shares of BURL have surged 41.5% over the past six months and 116.3% over the past year to close the last trading session at $255.67.

BURL’s bright prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has an A grade for Growth. It also has a B grade for Momentum and Quality. BURL is ranked #22 out of 60 stocks in the B-rated Fashion & Luxury industry.

To check POWR Ratings of BURL for Value, Stability, and Sentiment, click here.

HNI Corporation (HNI)

HNI engages in the manufacture, sale, and marketing of workplace furnishings and residential building products internationally. The company operates in two segments: Workplace Furnishings and Residential Building Products. It offers a range of commercial and home office furniture under brands like HON, Allsteel, Beyond, Gunlocke, HBF, HBF Textiles, and HNI India.

HNI’s revenue and EBITDA have grown at respective CAGRs of 8.1% and 17.3% over the past three years. The company’s EBIT has increased 19.9% over the same timeframe, while its net income and EPS have improved at CAGRs of 10.1% and 6.3%, respectively.

On August 12, HNI’s Board of Directors declared a quarterly dividend of $0.33 per share on its common stock. The dividend was paid on September 12, 2024, to shareholders of record at the close of business on August 23, 2024.

HNI pays an annual dividend of $1.32, which translates to a yield of 2.50% at the current share price. Its four-year average dividend yield is 3.46%. Moreover, the company’s dividend payouts have increased at a CAGR of 1.9% over the past three years. HNI has raised its dividends for 13 consecutive years.

On May 20, HNI announced it would close its Hickory, North Carolina, manufacturing plant in the first half of 2025 and consolidate its production into other North American facilities. The decision was taken to improve productivity and strengthen operations without sacrificing capacity or creating disruption, and it is likely to benefit customers and trade partners.

HNI’s net sales increased 10.7% year-over-year to $623.70 million during the second quarter that ended June 29, 2024. Its non-GAAP gross profit rose 21.6% year-over-year to $261.90 million. The company’s non-GAAP operating income grew 52.7% from the year-ago value to $55.90 million.

In addition, non-GAAP net income and EPS came in at $38 million and $0.79, up 57.7% and 43.6% from the previous year’s quarter, respectively.

Street expects HNI’s revenue for the third quarter (ended September 2024) to increase marginally year-over-year to $712.75 million. Its EPS for the same period is expected to grow 5.1% year-over-year to $0.98. Moreover, the company topped the consensus EPS estimates in each of the trailing four quarters.

HNI’s stock has gained 20% over the past six months and 55.1% over the past year to close the last trading session at $52.05.

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

The stock has an A grade for Sentiment and a B grade for Growth and Quality. Within the B-rated Home Improvement & Goods industry, HNI is ranked #4 of 57 stocks.

Click here to access additional ratings of HNI for Value, Momentum, and Stability.

American Outdoor Brands, Inc. (AOUT)

AOUT provides outdoor products and accessories for rugged outdoor enthusiasts internationally. The company offers shooting sports accessories products, outdoor lifestyle products, land management tools for hunting preparedness, harvesting products for post-hunt or post-fishing activities, outdoor cooking products, and camping, survival, and emergency preparedness products.

In terms of forward EV/Sales, AOUT is trading at 0.65x, 49.6% lower than the industry average of 1.28x. Likewise, the stock’s forward Price/Sales multiple of 0.58 is 38.4% lower than the industry average of 0.95.

During the first quarter that ended July 31, 2024, AOUT reported net sales of $41.64 million, and its non-GAAP gross profit was $19.15 million. The company’s non-GAAP operating income rose 640% from the year-ago value to $740 thousand.

Additionally, the company’s non-GAAP net income came in at $748 thousand or $0.06 per share, up 663.3% and 500% year-over-year, respectively. Its non-GAAP adjusted EBITDAS increased 76.9% from the prior year period to $1.99 million.

Analysts expect AOUT’s revenue and EPS for the third quarter (ending January 2025) to increase 6.3% and 31.3% year-over-year to $56.78 million and $0.11, respectively. Also, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.

Over the past six months, the stock has gained 12.4% and 4.7% over the past year to close the last trading session at $9.35.

AOUT’s POWR Ratings reflect its bright prospects. The stock has an overall B rating, translating to a Buy in our proprietary rating system.

AOUT has an A grade for Sentiment. The stock also has a B grade for Growth and Value. It has topped among the 34 stocks within the Athletics & Recreation industry.

To see the other ratings of AOUT for Momentum, Stability, and Quality, click here.

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BURL shares were unchanged in after-hours trading Thursday. Year-to-date, BURL has gained 30.03%, versus a 23.01% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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