Despite lingering supply chain disruptions, the retail industry is expected to benefit from strong consumer demand and accelerated digital transformation. Certain retail companies recorded better-than-expected quarterly earnings in their last reported quarters. So, considering their strong financials and solid growth prospects, we think it could be wise to invest in retail stocks Petco Health (WOOF) and Ralph Lauren (RL). Let’s discuss.
The retail industry has been rebounding since last year after being hard hit by the COVID-19 pandemic. In fact, the pandemic prompted retail companies to restructure their outmoded supply chains, optimize inventory management, and reinvent their physical stores for the digital age. The omnichannel retail experience has been dominating the industry off late, with retail companies increasing investments in digital capabilities. Advanced technologies, including the Internet of Things (IoT), augmented reality, and Artificial Intelligence (AI), are reshaping the retail industry.
The retail industry is projected to grow significantly this year, driven by the sustained demand for goods and services. Several fundamentally sound retail companies recently posted impressive quarterly earnings reports, beating analysts’ expectations. The shares of these retail companies are expected to soar in price in the near term due to their strong fundamentals, high-profit margins, and solid growth attributes.
Petco Health and Wellness Company, Inc. (WOOF)
San Diego, Calif.-based WOOF is a health and wellness company that focuses on enhancing the lives of pets, pet parents, and its Petco partners. The company offers veterinary care, training, grooming, telehealth, pet health insurance services, and veterinary services through Vetco mobile clinics. In addition, it provides pet consumables, supplies, and services through its Petco.com, petcoach.co, petinsurancequotes.com, and pupbo.com websites. WOOF operates more than 2,500 Petco locations in the U.S., Mexico, and Puerto Rico.
On May 5, WOOF partnered with Butterfly Network, Inc. (BFLY), a digital health company, to deploy Butterfly iQ+ Vet to WOOF’s growing network of nearly full-service veterinary hospitals at Petco pet care centers. “The single probe, full body technology of the Butterfly iQ+ Vet system will arm our veterinarians with ultrasound imaging that will help speed diagnoses and improve health outcomes,” said Dr. Whitney Miller, WOOF’s Chief Veterinarian.
WOOF’s net sales increased 4.3% year-over-year to $1.48 billion in its fiscal 2022 first quarter, ended April 30, 2022. Its operating income rose 4.6% year-over-year to $49.94 million. Its adjusted EBITDA improved 5.4% year-over-year to $132.55 million. In addition, the company’s net income and net income per Class A and B-1 common share came in at $23.80 million and $0.09, respectively, registering an increase of 287.1% and 200% year-over-year.
WOOF posted better first-quarter revenue and profits than Wall Street expected. The company’s revenue was $1.47 billion, exceeding Wall Street’s $1.45 billion revenue estimate. Also, WOOF’s comparable-store sales growth came in at 5.1%, up from the consensus call for 2.8%. Its adjusted EPS was 17 cents per share, while analysts polled by FactSet were expecting 15 cents per share.
Analysts expect WOOF’s revenue for its fiscal 2023 third quarter, ending Oct. 31, 2022, to come in at $1.56 billion, indicating a 7.9% increase year-over-year. Also, the $0.25 consensus EPS estimate for the same quarter represents a 22.8% rise from the same period last year. WOOF has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of WOOF have gained 10.9% in price over the past five days and closed Friday’s trading session at $16.46.
WOOF’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has a B grade for Quality.
Ralph Lauren Corporation (RL)
RL in New York City designs and distributes lifestyle products in North America, Europe, Asia, and internationally. The company offers apparel, accessories, home products, and fragrances. RL operates more than 548 retail stores, 650 concession-based shop-within-shops, 139 Ralph Lauren stores, and 143 Club Monaco stores through licensing partners.
On March 15, RL introduced a new limited-edition collection that builds upon its historic partnership with Morehouse College and Spelman College. The collection expresses the spirited history, deep-rooted sense of community, and legacy of timeless dressing at historically Black colleges and universities. This launch might boost the company’s market reach and sales.
In its fiscal 2022 fourth quarter, ended April 2, 2022, RL’s net revenues increased 18.3% year-over-year to $1.52 billion, and its gross profit grew 23.4% year-over-year to $966.10 million. Its operating income rose 243.2% from the prior-year period to $36.80 million. The company’s net income and net income per common share amounted to $24.40 million and $0.34, respectively, registering a rise of 132.9% and 133.7% year-over-year.
RL reported fiscal year 2022 fourth-quarter results recently, beating consensus estimates. The company’s adjusted net income per share came in at 49 cents per share, while analysts surveyed by FactSet expected 36 cents per share. In addition, RL posted $1.52 billion in revenue, exceeding expectations of $1.46 billion.
The $6.74 billion consensus revenue estimate for its fiscal 2024, ending March 2024, represents 5.1% growth from the previous year. The $9.50 consensus EPS estimate for the next year represents a 12.6% rise year-over-year. The company has an impressive revenue and earnings history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past five days, the stock has improved 6.5% in price and closed Friday’s trading session at $98.87.
RL’s strong fundamentals are reflected in its POWR Ratings. The stock has a grade of B for Quality and Value. Within the B-rated Fashion & Luxury industry, it is ranked #27 of 68 stocks.
To see additional POWR Ratings (Stability, Growth, Momentum, and Sentiment) for RL, click here.
WOOF shares were unchanged in premarket trading Tuesday. Year-to-date, WOOF has declined -16.83%, versus a -12.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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