The U.S. retail industry is in a state of change. Consumers are increasingly shopping online, favoring the convenience of delivery rather than taking a trip to a store.
Many retailers are struggling to adapt, having relied too heavily on malls for traffic. Some retail bankruptcies have already occurred, and more are likely to follow as the trend toward Internet retail continues.
But not all retailers are doomed. We still view many retail stocks favorably, although investors must be selective and focus on stocks that offer a combination of value, growth, and/or dividends.
Let's discuss three retail stocks with attractive valuations and high dividend yields.
Secure Payout With a 5.1% Yield
Best Buy Co. Inc. (BBY) is one the largest consumer electronics retailers in North America with operations in the U.S. and Canada. Best Buy sells consumer electronics, personal computers, software, mobile devices, and appliances and provides services. At end of Q4 FY 2023, Best Buy operated 925 Best Buy stores and 19 Best Buy Outlet Centers in the U.S., 20 Pacific Sales Stores, 14 Yardbird Stores, 127 Best Buy stores in Canada, and 33 Best Buy Mobile Stand-Alone Stores in Canada. Best Buy exited its Mexico operations in fiscal 2021. The company continues to lower total store count, continuing a long-term trend. The company's annual sales exceeded $46.3B in fiscal 2023.
Best Buy reported Q4 FY 2023 and full-year results on March 2. For the quarter, enterprise revenue decreased to $14,735M from $16,365M and non-GAAP diluted EPS decreased to $2.61 from $2.73 on a year-over year basis. GAAP diluted EPS decreased to $2.23 from $2.62. Comparable enterprise revenue decreased (-9.3%), the fifth straight quarterly decline. Domestic revenue fell (-9.6%) while comparable domestic online sales decreased (-13.0%) to $5.14B compared to the prior year due to low demand. Domestic online sales now comprise about 38.0% of total domestic revenue versus 39.4% last year.
Best Buy benefited from the pandemic and is now seeing tough comparisons. However, the company is undergoing a restructuring to align its cost structure with current business trends. Best Buy set FY 2024 guidance at revenue of $43.0B to $45.2B and non-GAAP diluted EPS at $5.70 to $6.50.
The stock has a 5.1% dividend yield. With a 2023 dividend payout ratio expected to be 60%, the dividend looks secure.
Welcome to the Dividend Department
Nordstrom Inc. (JWN) is a department store that sells clothes, shoes, and accessories. In some of its stores the company also offers items from the home furnishing and the wedding products categories. Nordstrom should produce nearly $15 billion in revenue this year after the company has fully recovered from the Covid recession.
Nordstrom reported fourth-quarter earnings on March 2, and results were mixed. Adjusted earnings per share came to 74 cents, which was seven cents better than expected. Revenue, however, was off 3.7% to $4.32 billion, and fractionally missed estimates. Gross profit was down 5.25% as a percentage of sales to 33.2%, which was attributed to markdown efforts to clear excess inventory. Inventory was down 15.2% year over year, which the company says will help margins improve in 2023 and beyond. Nordstrom guided for revenue to fall about 5% this year, mostly attributable to the winding down of the company's Canada business. Further, management guided for $1.80 to $2.20 in EPS.
Cost savings are helping, however, and given the guidance for 2023, we think operating margins have some upside potential if inflationary pressures subside. We are now estimating 2% growth from current earnings levels, however, with robust share repurchases and strong sales, there could be upside to our forecasts.
Nordstrom had paid out 30%-50% of its net profits during the last decade, which had allowed the company to spend a lot of cash on capital expenditures and share repurchases. Nordstrom's new payout is just 39% of this year's earnings, leaving plenty of margin of safety, and room for share repurchases.
The shares have a current dividend yield of 4.9%.
Benefiting From Aging Autos
Advance Auto Parts (AAP) is a leading automotive aftermarket parts provider that serves both do-it-yourself and professional customers. It has 4,417 stores and 313 Worldpac branches in the U.S., Canada, Puerto Rico, and the U.S. Virgin Islands. The company also serves 330 independently owned Carquest stores.
Advance Auto Parts has some striking differences from its two major peers, AutoZone (AZO) and O'Reilly Automotive (ORLY) . While its peers have exhibited remarkable consistency, Advance Auto Parts has shown more volatile performance. After a decades long frozen dividend payment streak Advanced Auto Parts increased its quarterly dividend from $0.06 to $0.25 in February of 2020, to $1.00 in April of 2021, and to $1.50 in February of 2022.
On February 28, Advance Auto Parts reported fourth-quarter and full-year results for the period ending December 31, 2022. For the quarter, net sales totaled $2.47 billion, a 2.9% increase compared to the fourth quarter of 2021, with comparable same-store sales increasing 2.1%. Adjusted EPS equaled $2.88 compared to $2.07 in the prior year.
For the year, revenue increased 1.4% to $11.2 billion while adjusted EPS of $13.04 compared favorably to $12.02 in 2022. Same-store sales were up 0.3% for the year. For the quarter, gross profit margin contracted 60 basis points to 44.1% while adjusted gross profit margin of 46.9% was consistent with the prior year. Adjusted expenses were down slightly to $958 million. The company opened 144 new stores during 2022.
Over the long-term growth can continue to accumulate in this manner. Advance Auto Parts can benefit from the ongoing auto-part replacement need. Moreover, with a moderate dividend payout ratio, share repurchases could underscore future EPS growth. To this point the company presently has $947 3illion remaining on its share repurchase authorization.
The stock has a 4.9% dividend yield.
