Improvement in infrastructure and an increase in the number of international brands has driven the growth of the specialty retailer industry.

Therefore, quality specialty retailers' stock Winmark Corporation (WINA) might be a solid buy. However, Murphy USA Inc. (MUSA) and GameStop Corp. (GME) might be best kept on hold.

The Consumer Price Index (CPI) for August marked a slightly hotter compared to economists' expectations, recording a 0.6% uptick month-over-month and a 3.7% increase year-over-year. On the other hand, core inflation slowed to 4.3% from 4.7% for the 12 months ending in August, marking its slowest pace since September 2021.

Moreover, increasing consumer demand and greater disposable income are anticipated to boost the specialty retailers market. Also, changing consumer profiles demographics, increasing urbanization, credit availability, improvement in infrastructure, and increase in the number of international brands are key factors fueling the specialty retail market.

The global specialty retailers' market is expected to reach $42.70 billion by 2031, expanding at a CAGR of 4%.

Stock to Buy:

Winmark Corporation (WINA)

WINA is a resale company that operates as a franchisor for small businesses in the United States and Canada. The company's Franchising segment franchises retail stores concepts that buy, sell, and trade merchandise.

WINA pays a $3.20 per share dividend annually, translating to a 0.88% yield on the current share price. Its four-year average dividend yield is 2.19%.

WINA’s trailing-12-month net income margin of 47.92% is significantly higher than the industry average of 4.33%. Its trailing-12-month ROTC and ROTA of 152.78% and 83.64% are significantly higher than the industry averages of 6.05% and 3.89%, respectively.

For the fiscal second quarter that ended July 1, 2023, WINA’s total revenue increased 6.8% year-over-year to $20.36 million, while its income from operations grew 7.2% year-over-year to $13.25 million. Its net income and earnings per share stood at $10.37 million and $2.85, up 14.9% and 12.2% from the year-ago quarter, respectively.

Over the past year, the stock has gained 69.3% to close the last trading session at $363.62.

WINA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an A grade for Quality and a B for Stability. The stock is ranked #12 out of 43 stocks in the A-rated Specialty Retailers industry.

Click here to see the POWR Ratings of WINA (Growth, Value, Momentum, and Sentiment).

Stocks to Watch:

Murphy USA Inc. (MUSA)

MUSA operates a chain of retail stores and markets motor fuel products and merchandise. It also manages non-fuel convenience stores and holds certain product supply and wholesale assets such as product distribution terminals and pipeline positions.

On August 17, 2023, MUSA declared a quarterly cash dividend on the Common Stock of MUSA of $0.39 per share, or $1.56 per share on an annualized basis, reflecting a 2.6% increase from the prior quarter.

MUSA pays a $1.56 per share dividend annually, which translates to an 0.48% yield on the current price level. Its four-year average dividend yield is 0.33%.

MUSA’s trailing-12-month ROCE of 76.15% is 587.1% higher than the industry average of 11.08%. However, its trailing-12-month gross profit margin of 6.95% is 80.4% lower than the industry average of 35.41%.

For the fiscal second quarter that ended June 30, 2023, MUSA’s revenue from merchandise sales increased 5.5% year-over-year to $1.05 billion. However, its net income decreased 27.6% year-over-year to $132.80 million, and earnings per common share decreased 20.1% year-over-year to $6.02.

Analysts expect MUSA’s EPS for the fiscal year ending December 2023 to decline 21.1% year-over-year to $22.24. Its revenue is expected to decrease 7.1% year-over-year to $21.77 billion for the same year. However, the company topped the consensus revenue estimates in three of the four trailing quarters.

Over the past six months, the stock has gained 36.8% to close the last trading session at $334.16.

The stock has an overall C rating, equating to a Neutral in our proprietary rating system.

MUSA has a C grade for Sentiment and Stability. It is ranked #14 in the same industry.

For additional ratings for MUSA for Growth, Momentum, Value, and Quality, click here.

GameStop Corp. (GME)

GME is a specialty retailer that offers games and entertainment products through stores and e-commerce platforms in the United States, Canada, Australia, and Europe.

On June 1, 2023, GME announced a strategic collaboration with The Telos Foundation that would allow the Telos blockchain to access mainstream gaming distribution via GameStop's upcoming Web3 game launcher, GameStop Playr.

GME’s trailing-12-month levered FCF margin of 6.57% is 28.9% higher than the industry average of 5.09%. However, its trailing-12-month gross profit margin of 23.82% is 32.7% lower than the industry average of 35.41%.

During the fiscal second quarter that ended July 29, 2023, GME’s net sales increased 2.4% year-over-year to $1.16 billion, and its gross profit rose 8.4% from the year-ago value to $305.90 million. However, the company registered a net loss and loss per share of $2.80 million and $0.01 during the same quarter.

GME’s revenue for the fiscal year ending January 2024 is expected to decrease 2.5% year-over-year to $5.78 billion. Street expects the company to report a loss per share of $0.02 for the same year.

While shares of GME have plunged 11.8% over the past month, they have soared 6.3% over the past six months to close its last trading session closing at $17.81.

It is no surprise that the stock has an overall C rating, equating to a Neutral in our proprietary rating system.

GME also has a C grade for Quality and Sentiment. It is ranked #38 in the same industry.

Beyond what is stated above, we’ve also rated Growth, Value, Stability, and Momentum. Get all GME ratings here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

WINA shares were trading at $373.90 per share on Thursday morning, up $10.28 (+2.83%). Year-to-date, WINA has gained 59.68%, versus a 18.51% rise in the benchmark S&P 500 index during the same period.

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.

More...