In this article, we will discuss the 10 high growth retail stocks that are profitable. You can skip our industry overview and go directly to the 5 High Growth Retail Stocks That Are Profitable.
The global surge in inflation rates has resulted in reduced consumer spending growth in real terms, creating a challenging economic landscape for the retail industry. Even during the 2022 holiday season, sales trends were not very promising, as reported by the National Retail Federation. In the United States, retail sales saw a decline of 0.4% in February 2023, following a 3.2% increase in January. Similarly, retail sales in eurozone countries declined by 2.7% on a monthly basis in December, rebounding by a modest 0.3% in January 2023.
S&P Global Market Intelligence has forecasted a retail sales growth rate of 0.5% in 2023 for the US. The forecast further indicates that retail sales will return to slower growth rates than pre-pandemic levels after 2023. The challenges attributed to retail sales growth in 2023 include reduced consumer spending amidst a deteriorating macro environment. Despite the relatively healthy labor market, the probability of a recession poses a significant threat to the retail industry, resulting in a contraction of the economy and a rise in unemployment.
Walmart, Inc.’s (NYSE:WMT) CFO, John Rainey, stated the following while giving his outlook for 2023.
The consumer is still very pressured. If you look at economic indicators, balance sheets are running thinner, and savings rates are declining relative to previous periods. And so that’s why we take a pretty cautious outlook on the rest of the year.
To address rising inflation, the Federal Reserve has implemented monetary tightening measures by gradually raising interest rates from 0.25% in February 2022 to 4.75% currently. As interest rates climb, investors tend to be less eager to invest in risk assets as they become less attractive compared to bonds that offer attractive yields at higher rates. As a result, some stocks in the retail sector have seen a decline in their value. However, there are niche stocks in the retail sector that have seen high growth even in a period of a macro-downturn due to the nature of their business and loyal customer base. Hence, the market still presents an opportunity for investors with a discerning eye to identify promising stocks in the retail sector that may be currently overlooked because of macro headwinds.
Despite the continued dominance of brick-and-mortar retailers such as Costco (NASDAQ:COST), Target Corporation (NYSE:TGT), and Walmart, Inc. (NYSE:WMT), the exponential growth of e-commerce has had its impact on the retail sector. Many of the popular retail companies these days are online stores, such as Revolve Group, Inc. (NYSE:RVLV), which caters to Gen-Z fashion. Other companies, such as furniture retailer Arhaus, Inc. (NASDAQ:ARHS), that have found success by maintaining both a physical and online presence.
The retail industry is projected to attain yearly sales of $30 trillion by the year 2024. Walmart Inc. (NYSE: WMT) holds the top spot in terms of sales and revenue in the retail industry, generating $538 billion in 2021, outpacing Amazon.com, Inc. (NYSE:AMZN) and Costco Wholesale Corporation (NYSE:COST). However, investors may want to look at emerging markets for new opportunities in the retail sector. According to Insider Intelligence, Latin America is expected to be the second-fastest-growing retail e-commerce market in 2023, which bodes well for MercadoLibre, Inc. (NASDAQ:MELI), which is often referred to as the Amazon of Latin America. Additionally, the recent crash of Brazil’s Americanas S.A. (AMER3.SA) has opened up new growth prospects for MercadoLibre, Inc. (NASDAQ:MELI) to take up market share in Brazil.
Our Methodology
To come up with 10 high growth retail stocks that are profitable, we have used stock screeners available to identify high growth retail stocks. We screened retail stocks with at least 20% revenue growth over the past four quarters and at least $500 million in market capitalization. The year-over-year growth metric used to screen companies calculates the percentage change from the trailing twelve month revenues compared to the twelve month’s prior.
10 High Growth Retail Stocks That Are Profitable
10. Arko Corp. (NASDAQ:ARKO)
Revenue Growth YOY: 23.26%
Arko Corp. (NASDAQ:ARKO) operates as a holding company that runs convenience stores in the US. The operating segments comprise wholesale, retail, and GPM petroleum. The company sells merchandise, food, and fuel. Arko Corp. (NASDAQ:ARKO) operates in roughly 3,000 locations, which include approximately 1,400 stores and nearly 1,650 dealership sites.
On January 9, 2023, Kelly Bania, an analyst at BMO Capital, reduced her price target on Arko Corp. (NASDAQ:ARKO) to $10 from $12 while keeping an Outperform rating on the company’s shares. According to the analyst, even with conservative margin estimates, the stock’s valuation remains too cheap to ignore.
In addition to Arko Corp. (NASDAQ:ARKO), Polished.com Inc. (NYSE:POL), Asbury Automotive Group, Inc. (NYSE:ABG), and MercadoLibre, Inc. (NASDAQ:MELI) are included in our list of 10 high growth retail stocks that are profitable.
9. Revolve Group, Inc. (NYSE:RVLV)
Revenue Growth YOY: 23.56%
Revolve Group, Inc. (NYSE:RVLV) is an e-commerce fashion company based in the United States. The company’s operating segment include Revolve, which offers apparel and fashion accessories for men and women. The other segment is FWRD which is a sister site to revolve.com that operates as a luxury fashion retailer. Revolve Group, Inc. (NYSE:RVLV) also has a designer-based section where buyers may directly interact with the items provided by a certain designer of their choice.
On February 23, 2023, Revolve Group, Inc. (NYSE:RVLV) announced its fourth-quarter 2022 results. The revenue was reported to be $259.15 million, exceeding wall street estimates by $11.80 million. The Normalized EPS stood at $0.11, surpassing market estimates by $0.01.
8. Casey’s General Stores, Inc. (NASDAQ:CASY)
Revenue Growth YOY: 28.24%
Casey’s General Stores, Inc. (NASDAQ:CASY) operates a chain of convenience stores in the United States. The company offers freshly prepared food, such as pizzas and sandwiches, packaged food products, including snacks and beverages, and other essential items. Other products and services of Casey’s General Stores, Inc. (NASDAQ:CASY) comprise fuel, tobacco products, gift cards, electric vehicle charging, car wash services, and card services. Casey’s General Stores, Inc. (NASDAQ:CASY) operates over 2,400 stores in 16 states.
On December 8, 2022, John Lawrence, an analyst at Benchmark, increased his price target on Casey’s General Stores, Inc. (NASDAQ:CASY) to $275 from $230 while keeping a Buy rating on the company’s shares. The analyst is bullish on the company due to strong second-quarter 2022 performance and higher-than-expected gas margins and retail sales.
Upslope Capital Management mentioned Casey’s General Stores, Inc. (NASDAQ:CASY) in its Q4 2022 investor letter. Here is what the firm has to say:
Focused exclusively on the Midwest/South, Casey’s General Stores, Inc. (NASDAQ:CASY)’s is the third largest independent convenience store operator in the U.S. The company has executed well and shares have outperformed a challenging market nicely since the position was initiated a year ago. It may seem strange to sell a position with this backdrop, but I did so for two reasons. First, it was purchased in the first place as a reasonably priced defensive during an orgy of speculation. In this context, CASY served its purpose. Second, given the developments of the past year and Upslope’s overall still-defensive portfolio, I think there are better uses of capital today – specifically cheaper, less-defensive longs. Some of these are highlighted in Exhibit 4 below.
7. Murphy USA Inc. (NYSE:MUSA)
Revenue Growth YOY: 38.82%
Headquartered in Arkansas, United States, Murphy USA Inc. (NYSE:MUSA) operates a chain of retail gasoline stations and convenience stores. The company offers gasoline products, low-priced quality fuel, and convenience store items. Murphy USA Inc. (NYSE:MUSA) operates over 1,700 stores in 27 states.
On February 1, 2023, Murphy USA Inc. (NYSE:MUSA) reported its fourth-quarter results for the fiscal year 2022. The company reported a revenue of $5.37 billion, surpassing market expectations by $11.17 million. The Normalized EPS stood at $5.24, falling short of estimates by $0.93.
Here’s how ClearBridge Investments mentioned Murphy USA Inc. (NYSE:MUSA) in the Q2, 2022 investor letter:
Despite broad challenges to the sector’s overall performance, our stock selection within the consumer discretionary sector proved beneficial during the quarter. Specifically, positive performance was largely driven by our holding Murphy USA Inc. (NYSE:MUSA), which operates a chain of retail gas stations across the U.S. offering retail motor fuel products and convenience merchandise. Murphy USA’s share price rose after beating market expectations for the first quarter, as the company’s strong cost discipline and exceptionally low fuel breakeven points relative to its peers have allowed it to earn higher margins from spiking gas prices.
Additionally, the company has a strong consumer loyalty program that has driven increased market share for Murphy in snack foods and other in-store categories. We have high conviction in the company and believe it will continue to be a long-term growth compounder for the portfolio.
6. Aritzia Inc. (OTC:ATZAF)
Revenue Growth YOY: 51.94%
Aritzia Inc. (OTC:ATZAF) is a women’s fashion brand based in Canada. The company offers a full range of formal and casual wear, including t-shirts, sweaters, rompers, jackets, dresses, etc. In addition, the featured products section showcases activewear, sweatsuits, sculpt knit, contour, and knitwear. Aritzia Inc. (OTC:ATZAF) offers its products under several brand names, including Wilfred, Babaton, Tna, TnAction, Sunday Best, and Super World.
On January 11, 2023, the company reported its fourth-quarter 2022 results. The revenue of Aritzia Inc. (OTC:ATZAF) stood at $465.18 million, beating market estimates by $34.31 million. The Normalized EPS was reported to be $0.50, exceeding market estimates by $0.04.
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Disclosure: None. 10 High Growth Retail Stocks That Are Profitable is originally published on Insider Monkey.
