We recently compiled a list of the 8 High Growth Retail Stocks That Are Profitable in 2024. In this article, we are going to take a look at where Burlington Stores, Inc. (NYSE:BURL) stands against the other high growth retail stocks.
Lift in US Retail Sales due to Discretionary Spending
US retail sales increased solidly in September, supporting the view that the US economy possibly maintained a strong growth pace in Q3. Sales growth surpassed forecasts with an increase of 0.4%. A so-called control group of core sales jumped 0.7%. On October 18, James Knightley, chief international economist at ING, appeared on Reuters to talk about the retail sales growth. He said that a number of things are happening in the sector, with the key story being the remarkable resilience showed by the US consumer despite concerns about the job market cooling, high borrowing costs, and savings being exhausted. It looks as if the economy is on track to record a second consecutive 3% growth rate in this current quarter.
However, concerns that disproportionately high spending by higher-income groups is offsetting weaker spending by lower-income households are rising. The top 20% of the American households spend more in dollar terms as compared to the bottom 60% of the households by income. For the people in the top 20%, everything that could go right is going right. However, lower-income households have several pressures weighing them down, with inflation being a constraint.
This divergence in the household performance is a key story in the sector, with experts looking at how long high-income households can continue to offset the intensifying weakness in the lower-income sector. Knightley says that hiring does appear to be slowing in the job market, with jobless claims apparently being on the rise. These factors point to an intensification in the job market slowdown. If that is the case, it is expected to put more and more pressure on the bottom 60% of the households. If these households begin to fear the risk of rising joblessness, then that can be more of a headwind for economic activity felt more broadly.
All in all, it appears to be a mixed picture for the Fed. Being in the middle of the Q3 earnings season, Knightley gives an outlook on future earnings growth and says that it appears that the economy is performing pretty robustly despite headwinds. However, he also says that it is important to note that the equity market looks towards the future at all times, and that the Fed cuts rates for a reason. He feels as if a cooling is coming through, and that the earning estimates in the coming quarters might be even softer than what we are seeing in Q3. He thus think that the pressure is going to be much more telling for US corporate moving through Q4 and through next year.
A Concentrated Consumer or Slowing Consumer?
On August 21, Matt Boss, JPMorgan retail analyst, appeared on ‘Closing Bell’ to discuss the retail sector and the state of the consumer. He said that seeing from the backdrop of the consumer, we are witnessing a concentrated consumer instead of a slowing consumer across the spending front. Consumers are concentrating on events, such as the Back to School season experiencing accelerated traffic in consumers in that segment. Boss also said that the consumer is concentrating on value, highlighting the need for value in brick-and-mortar to offset convenience.
With consumer concentration directed towards key catalysts or holiday shopping periods, trends may show higher “peaks” and greater “lulls” of spending in between catalysts. Consumer shopping is coming up in several different ways, which he considers a by-product of COVID-19. However, Boss says that the reality is that consumer spending remains stable.
He believes that retail stocks that deliver value and have brands that consumers want in convenient settings are likely to experience higher consumer engagement and exhibit signs of consumer stability. Boss’ playbook for growth in the retail segment for the back half of 2024 thus includes innovation, differentiated product, value, and convenience in the e-commerce front.
In his optimism across the sector, Boss sees more winners than losers within the department store and specialty segment. He also believes that the consumer has been in a selective recession, with the low-income consumer being under immense pressure. The high-income and middle-income consumers remain plentiful on the spending side.
Our Methodology
To compile the list of 8 high growth retail stocks that are profitable in 2024, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener, we compiled an initial list of 40 retail stocks with 5 years of positive sales growth (at least high single digits). Next, using Yahoo Finance and Seeking Alpha, we sourced the 5-year net income and revenue growth rates along with the TTM net income (at least $100 million) to ensure profitability in 2024. Lastly, we ranked our stocks based on the number of hedge fund holders in Q2 2024 as per Insider Monkey’s database. The list is ranked in ascending order of the number of hedge fund holders.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Women in fashionable clothing walking together down a busy city street.
Burlington Stores, Inc. (NYSE:BURL)
5-Year Net Income Growth: 0.22%
5-Year Revenue Growth: 8.13%
TTM Net Income: $428.28 million
Number of Hedge Funds as of Q2 2024: 42
Burlington Stores, Inc. (NYSE:BURL) is an off-price retailer that sells branded apparel, footwear, accessories, and home merchandise at low prices. It offers an elaborate array of fashion-focused, in-season merchandise. This includes ready-to-wear apparel for men and women, beauty, footwear, baby, accessories, toys, home, coats, and gifts.
The company operates through five distribution centers, two of which are located on the East Coast in New Jersey and three on the West Coast in California. In addition, Burlington Stores, Inc. has a third-party arrangement for the use of pool point facilities. Burlington Stores, Inc. (NYSE:BURL) operates more than 1,000 stores, principally under the name Burlington Stores.
It is running on solid fundamentals, experiencing a 13% growth in total sales in Q2 2024 compared to Q2 2023. This was on top of the 9% total sales growth versus Q2 2022. The company’s expansion strategy is working, as new stores are a crucial driver of this growth. It added 36 net new stores in Q2, ending the quarter with 1,057 locations. For 2024 as a whole, the company is on track to open 100 net new stores in addition to 30 relocations. On average, it expects its new stores to run at around $7 million in sales in their first full year.
Comp sales growth is another driver of the company’s top-line sales. Comp-store sales for Q2 2024 increased by 5% versus its guidance of flat to 2%. Burlington Stores, Inc. (NYSE:BURL) also expanded its operating margin by 160 basis points in the quarter compared to last year. The primary drivers of this expansion were lower markdowns, faster inventory turns, and faster-than-expected progress in its supply chain efficiency initiatives. The company’s well-ahead-of-planned sales growth and solid margin expansion drove strong earnings growth in Q2. The company ranks fourth on our list of the 8 high growth retail stocks that are profitable in 2024.
Argosy Investors made the following comment about Burlington Stores, Inc. (NYSE:BURL) in its Q3 2023 investor letter:
“Burlington Stores, Inc. (NYSE:BURL) participates in the off-price retail category and competes against well-known players such as TJ Maxx and Ross Stores. BURL recently suffered from an inventory overhang that dented margins and is also suffering from a slowdown in same-store sales. With that said, the company has the capacity to double its stores, double its margins to levels consistent with peers, and expand same-store sales growth. On normalized margins, which the company last achieved in fiscal 2019, BURL is trading at ~10x earnings, with the potential to grow top-line low double digits, increase bottom line mid-teens, and increase EPS high teens over time.”
Overall BURL ranks 4th on our list of the high growth retail stocks that are profitable in 2024. While we acknowledge the potential of BURL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BURL but trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
