Specialty retail serves a diverse array of consumer preferences, supported by both online and offline sales channels that expand market reach. Companies are implementing innovative strategies, such as new product launches and exclusive promotions, to attract consumers during peak seasons.

Given these dynamics, investing in fundamentally strong specialty retail stocks like Lululemon Athletica Inc. (LULU), Best Buy Co., Inc. (BBY), and Ulta Beauty, Inc. (ULTA) could be a smart move, as they are poised for strong holiday sales.

As the holiday season approaches, retailers are intensifying their marketing and promotional efforts, driving sales in key sectors like clothing (including luxury items), electronics, and festive products. Meanwhile, improved economic stability and accessible financing options are empowering consumers to make purchases, further boosting demand in the retail sector and creating significant growth opportunities.

The specialty products market is set to grow at a 9.4% CAGR, reaching $6.33 billion this year, driven by the rise of e-commerce and increasing consumer spending. This growth underscores evolving consumer preferences for boutique and niche brands, as well as a demand for innovative packaging, customization, and personalization across sectors like lifestyle, beauty, and electronics.

Furthermore, the luxury and fashion markets are poised for growth this holiday season, as high-end consumers show increased optimism, with 82% planning to spend the same or more than last year. Early shopping, the rise of e-commerce, and luxury gift-giving will drive demand. The luxury goods market is projected to generate $473.90 billion in revenue this year, growing at a steady CAGR of 4%.

Considering these conducive trends, let’s analyze the fundamental aspects of the three specialty retail picks.

Lululemon Athletica Inc. (LULU)

Based in Vancouver, Canada, LULU and its subsidiaries design, distribute, and retail athletic apparel, footwear, and accessories under the Lululemon brand for women and men. They offer pants, shorts, tops, and jackets for a healthy lifestyle, including yoga, running, training, and other activities. They also provide fitness-inspired accessories.

In terms of the trailing-12-month gross profit margin, LULU’s 58.54% is 55.2% higher than the 37.71% industry average. Its 43.16% trailing-12-month Return on Common Equity is 307.2% higher than the 10.60% industry average. Likewise, the stock’s 24.21% trailing-12-month Return on Total Assets is 521.3% higher than the 3.90% industry average.

LULU’s net revenue for the second quarter that ended July 28, 2024, increased 7.3% year-over-year to $2.37 billion. Its gross profit grew 8.8% year-over-year to $1.41 billion. Moreover, its net income was reported at $392.92 million and $3.15 per share, up 15% and 17.5% year-over-year, respectively.

Street expects LULU’s EPS and revenue for the quarter ended October 31, 2024, to increase 7.7% and 6.9% year-over-year to $2.72 and $2.36 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, LULU’s stock has gained 19.9% to close the last trading session at $309.53.

LULU’s solid prospects are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Quality and a B for Growth and Sentiment. It is ranked #24 out of 61 stocks in the B-rated Fashion & Luxury industry. Click here to see LULU’s Value, Momentum, and Stability ratings.

Best Buy Co., Inc. (BBY)

BBY engages in the retail of technology products internationally. Its stores offer computing and mobile phone products, including related mobile network carrier commissions, networking products, tablets, smartwatches, and consumer electronics such as digital imaging, health and fitness products, and portable audio devices.

In terms of the trailing-12-month Return on Common Equity, BBY’s 42.41% is 296.9% higher than the 10.68% industry average. Its 2.75x trailing-12-month asset turnover ratio is 175.5% higher than the 1x industry average. Also, the stock’s 8.06% trailing-12-month Return on Total Assets is 107.2% higher than the 3.89% industry average.

For the fiscal second quarter ended August 3, 2024, BBY’s revenue amounted to $9.29 billion, and its gross profit reached $2.19 billion. The company’s operating income rose 10.1% year-over-year to $383 million. Similarly, BBY’s net income and EPS were $291 million and $1.34, up 6.2% and 7.2% compared to the prior-year quarter, respectively.

For the quarter ended October 31, 2024, BBY’s EPS is expected to increase marginally year-over-year to $1.30. Its revenue for the quarter ending April 30, 2025, is expected to rise 2.1% year-over-year to $9.03 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 30.5% to close the last trading session at $89.

BBY’s positive outlook is reflected in its POWR Ratings. It has a B grade for Quality. It is ranked #15 out of 39 stocks in the Specialty Retailers industry. Beyond what we stated above, we also have given BBY grades for Growth, Value, Momentum, Stability, and Sentiment. Get all the BBY ratings here.

Ulta Beauty, Inc. (ULTA)

ULTA operates as a specialty beauty retailer in the United States. The company offers branded and private-label beauty products, including cosmetics, fragrances, haircare, skincare, bath and body products, professional hair products, and salon styling tools through its Ulta Beauty stores, shop-in-shops, the Ulta.com website, and its mobile applications.

On September 25, 2024, ULTA announced a partnership with Universal Pictures for a multi-branded beauty collection inspired by the film Wicked. The collection, available from October 6, 2024, includes exclusive products from brands like r.e.m. beauty by Ariana Grande and OPI, and will feature immersive experiences in select stores.

In terms of the trailing-12-month Return on Common Equity, ULTA’s 54.98% is 414.6% higher than the 10.68% industry average. Its 42.52% trailing-12-month gross profit margin is 13% higher than the 37.62% industry average. Likewise, the stock’s 2.06x trailing-12-month asset turnover ratio is 106.5% higher than the 1x industry average.

During the second quarter that ended August 3, 2024, ULTA’s net sales increased marginally year-over-year to $2.55 billion, with a gross profit of $978.18 million. For the same quarter, its net income was $252.56 million, or $5.30 per share. Additionally, as of August 3, 2024, ULTA’s total assets stood at $5.74 billion, compared to $5.25 billion as of July 29, 2023.

Analysts expect ULTA’s revenue for the quarter ended October 31, 2024, to increase marginally year-over-year to $2.49 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined 5.9% to close the last trading session at $347.33.

ULTA’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Quality. Within the Specialty Retailers industry, it is ranked #29. To see ULTA’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.

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LULU shares were trading at $305.11 per share on Tuesday afternoon, down $4.42 (-1.43%). Year-to-date, LULU has declined -40.33%, versus a 25.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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