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3 Retail Stocks to Watch as Inflation Pressures Ease

With energy prices retreating from their peaks, the consumer price index increased 8.5% year-over-year in July, lower than the 40-year high in June. With slightly eased inflationary pressure and a red-hot job market, a resurgence in discretionary spending is expected in the months ahead. Given this backdrop, we think fundamentally sound retail stocks TravelCenters of America (TA), Build-A-Bear Workshop (BBW), and Aeon (AONNY) are worth adding to your watchlist. Read on…

An 11% drop in gasoline prices in July has been able to restrict the rise in the Consumer Price Index (CPI) to 8.5% versus the 40-year high of 9.1% in June. In June, workers saw a 0.5% monthly increase in real wages, and the job market witnessed a solid improvement.

Moreover, according to a New York Federal Reserve survey, consumers’ one- and three-year-ahead inflation expectations dropped sharply in July to 6.2% and 3.2% from 6.8% and 3.6% in June, respectively. With easing inflationary pressures, an improved job market, and an increase in real wages, consumer spending is expected to rebound in the upcoming months.

Thus, it could be wise to add quality retail stocks TravelCenters of America Inc. (TA), Build-A-Bear Workshop, Inc.(BBW), and Aeon Co., Ltd. (AONNY) to your watchlist.

TravelCenters of America Inc. (TA)

TA operates travel centers in the United States and Canada under the TravelCenters of America, TA, TA Express, Petro Stopping Centers, and Petro brand names. Its offers diesel and gasoline fuel, truck maintenance and repair, full-service and quick-service restaurants, travel stores, car and truck parking, and other services.

In June, TA announced a partnership with Service Management Group (SMG), an enterprise customer and employee experience management partner to more than 500 brands. The company selected SMG for its ability to capture feedback across the customer journey, industry-leading benchmarks, and outcomes-driven approach. This partnership might fuel TA’s customer experience, thereby boosting its business growth.

On May 5, TA announced the opening of a new TA Express travel center in Fairfield, Texas. With this franchised location, TA has expanded its nationwide network to 276 sites. Jon Pertchik, CEO of TA, said, “In partnership with our franchisee, we are proud to join the Fairfield community and look forward to serving travelers and residents along Interstate 45.”

In the second quarter ended June 30, 2022, TA’s revenues increased 67.9% year-over-year to $3.08 billion. Its income from operations grew 89.3% from the year-ago value to $94.23 million. Its adjusted EBITDA rose 66.9% from the year-ago value to $122.75 million.

The company’s adjusted net income and net income attributable to common stockholders came in at $64.40 million and $4.34, up 117% and 108.7% from the prior-year period, respectively.

The consensus EPS estimate of $9.08 for the fiscal year 2022 represents a 120.9% improvement year-over-year. The consensus revenue estimate of $10.88 billion for the current year represents a 48.28% increase from the previous year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

TA has gained 58.5% over the past month and 54.3% over the past year to close its last trading session at $58.25.

It is no surprise that TA has an overall POWR Ratings of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

TA has a grade of A for Growth and Value and B for Sentiment and Quality. In the Specialty Retailers industry, it is ranked #1 out of 46 stocks.

Click here to see additional POWR Ratings for Momentum and Stability for TA.

Build-A-Bear Workshop, Inc.(BBW)

BBW operates as a multi-channel retailer of plush animals and related products. The company operates through three segments: Direct-to-Consumer; Commercial; and International Franchising. It runs around 346 locations managed by corporate and 72 franchised stores in Asia, Australia, the Middle East, Africa, and South America.

On May 26, 2022, Sharon Price John, BBW’s President, and CEO, said, “Our digital demand this quarter was greater than our total e-commerce sales for the entire 2017 fiscal year, demonstrating the progress made in our digital transformation over the last five years.” As of April 30, the company had 345 corporately managed stores.

For the fiscal 2022 first quarter ended April 30, 2022, BBW’s total revenues came in at $117.66 million, up 28.3% year-over-year. Its consolidated gross profit increased 27.7% from the prior-year period to $61.83 million. The company’s EBITDA rose 31.5% year-over-year to $21.46 million.

BBW’s net income increased 36.7% year-over-year to $14.19 million, while its income per common share came in at $0.89, up 34.8% year-over-year.

The consensus revenue estimate of $96.67 million for the fiscal 2023 second quarter (ending July 2022) represents a 2.1% year-over-year growth. In addition, analysts expect BBW’s revenue for the fiscal year 2023 (ending January 2023) to increase 10.4% year-over-year to $454.50 million. It has surpassed the consensus revenue estimates in each of the trailing four quarters.

Over the past year, the stock has gained 33.9% to close the last trading session at $18.30.

BBW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. It has an A grade for Quality and a B grade for Sentiment. BBW is ranked #11 of 46 stocks in the Specialty Retailers industry. 

Click here to see the additional POWR Ratings for BBW (Growth, Momentum, Stability, and Value).

Aeon Co., Ltd. (AONNY)

AONNY is an international retailer headquartered in Chiba, Japan. The company operates through seven segments: General Merchandise Store (GMS) Business; Supermarket (SM) Business; Health & Wellness Business; Financial Services Business; Shopping Center Development Business; Services & Specialty Store Business; and International Business.

AONNY’s operating revenue increased 2.3% year-over-year to ¥2.20 trillion ($16.51 billion) in the fiscal 2022 first quarter ended May 31, 2022. The company's operating profit rose 12% from the year-ago value to ¥43.89 billion ($329.52 million). 

Furthermore, its profit attributable to owners of the parent came in at ¥19.37 billion ($145.40 million), up 287.3% year-over-year. Its earnings per share grew 287.1% from the prior-year period to ¥22.88.

Analysts expect AONNY’s revenue for the fiscal year 2023 (ending February 2023) to increase 15976.3% year-over-year to $67.11 billion. Also, Street expects the revenue for fiscal 2024 to grow 1.85% year-over-year to $68.35 billion.

Over the past month, AONNY has gained 11.09% to close the last trading session at $21.23.

AONNY’s stable outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy. AONNY also has a B grade for Growth, Stability, and Quality. Among the 46 stocks in the same industry, it is ranked #4.

Click here to see the additional POWR Ratings for AONNY (Value, Momentum, and Sentiment).

TA shares were unchanged in after-hours trading Tuesday. Year-to-date, TA has gained 12.34%, versus a -8.86% 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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