Tilly's, Penske Automotive Group, CarMax, and Grocery Outlet Shares Plummet, What You Need To Know

Over the past six months, Penske Automotive Group’s shares (currently trading at $163.28) have posted a disappointing 5.8% loss, well below the S&P 500’s 8.1% gain. This might have investors contemplating their next move.

Why Is Penske Automotive Group Not Exciting?

Even with the cheaper entry price, we're swiping left on Penske Automotive Group for now. Here are three reasons why PAG doesn't excite us and a stock we'd rather own.

1. Same-Store Sales Falling Behind Peers

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Penske Automotive Group’s demand within its existing locations has been relatively stable over the last two years but was below most retailers. On average, the company’s same-store sales have grown by 1.4% per year.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Penske Automotive Group has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 16.5% gross margin over the last two years. Said differently, Penske Automotive Group had to pay a chunky $83.50 to its suppliers for every $100 in revenue.

3. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Penske Automotive Group, its EPS declined by 8.8% annually over the last three years while its revenue grew by 4.2%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Penske Automotive Group isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 12.4× forward P/E (or $163.28 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.

Wrapping up Q3 earnings, we look at the numbers and key takeaways for the apparel retailer stocks, including Urban Outfitters and its peers.

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

The 9 apparel retailer stocks we track reported a very strong Q3. As a group, revenues beat analysts’ consensus estimates by 2% while next quarter’s revenue guidance was in line.

Luckily, apparel retailer stocks have performed well with share prices up 13.4% on average since the latest earnings results.

Urban Outfitters

Founded as a purveyor of vintage items, Urban Outfitters now largely sells new apparel and accessories to teens and young adults seeking on-trend fashion.

Urban Outfitters reported revenues of $1.53 billion, up 12.3% year on year. This print exceeded analysts’ expectations by 2.6%. Overall, it was a very strong quarter for the company with an impressive beat of analysts’ EBITDA estimates and a solid beat of analysts’ revenue estimates.

“We are pleased to report record revenues, profits, and earnings per share for the quarter,” said Richard A. Hayne, Chief Executive Officer.

Urban Outfitters pulled off the fastest revenue growth of the whole group. Unsurprisingly, the stock is up 2.1% since reporting and currently trades at $69.74.

Best Q3: Zumiez

With store associates called “Zumiez Stash Members”, Zumiez is a specialty retailer of street and skate apparel, footwear, and accessories.

Zumiez reported revenues of $239.1 million, up 7.5% year on year, outperforming analysts’ expectations by 2%. The business had an exceptional quarter with a beat of analysts’ EPS estimates and a solid beat of analysts’ EBITDA estimates.

Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 9.4% since reporting. It currently trades at $24.70.

Weakest Q3: Torrid

Promoting a message of body positivity and inclusiveness, Torrid Holdings is a plus-size women’s apparel and accessories retailer.

Torrid reported revenues of $235.2 million, down 10.8% year on year, falling short of analysts’ expectations by 2%. It was a disappointing quarter as it posted full-year EBITDA guidance missing analysts’ expectations significantly and a significant miss of analysts’ EBITDA estimates.

Torrid delivered the highest full-year guidance raise but had the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 4.3% since the results and currently trades at $1.22.

Read our full analysis of Torrid’s results here.

Victoria's Secret

Spun off from L Brands in 2020, Victoria’s Secret is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.

Victoria's Secret reported revenues of $1.47 billion, up 9.2% year on year. This result surpassed analysts’ expectations by 4.5%. Overall, it was an exceptional quarter as it also put up a beat of analysts’ EPS estimates and an impressive beat of analysts’ gross margin estimates.

Victoria's Secret scored the biggest analyst estimates beat but had the weakest full-year guidance update among its peers. The stock is up 49.5% since reporting and currently trades at $62.15.

Read our full, actionable report on Victoria's Secret here, it’s free.

Tilly's

With an emphasis on skate and surf culture, Tilly’s is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.

Tilly's reported revenues of $139.6 million, down 2.7% year on year. This number beat analysts’ expectations by 2%. It was an exceptional quarter as it also recorded EPS guidance for next quarter exceeding analysts’ expectations and a beat of analysts’ EPS estimates.

The stock is down 6.9% since reporting and currently trades at $1.69.

Read our full, actionable report on Tilly's here, it’s free.