Increased personal spending and higher disposable income are fueling strong sales momentum. This creates a prime opportunity for investors to capitalize on the growth of the retail sector. Specialty retailer stocks, Arko Corp. (ARKO), Murphy USA Inc. (MUSA), and Sally Beauty Holdings, Inc. (SBH), seem well-positioned for growth.

Recently, the Federal Reserve dropped a quarter-point cut to its key interest rate, sending ripples through the economy. This marks the Fed’s third rate cut of the year, adjusting its target rate to a range between 4.25% and 4.5%. While the market expected three cuts for 2025, the Fed’s new projections suggest only two.

Despite that conservative outlook, the Fed’s statement had a surprisingly optimistic tone. Jerome Powell, the Fed Chair, highlighted how the U.S. economy is faring better than most others, which is something to cheer about.

But here is the interesting twist. Consumers do not seem to be sweating it. Retail sales for November climbed 0.7% in a monthly increase, surpassing forecasts of 0.6%. Even better, the October sales figure was revised upwards from 0.4% to 0.5%. Retailers are seeing steady growth, and confidence is high in the market.

Looking deeper into consumer behavior, disposable personal income in November jumped by $61.10 billion, or 0.3%, from the previous month. Meanwhile, consumer spending soared by $81.30 billion in the same monthly comparison. This opens up a great opportunity for investors to consider specialty retailers.

The sector seems to be holding strong, bolstered by the holiday season. With rising sales figures and a positive retail outlook, there is plenty of room for growth.

So, let us dive deep into the fundamentals of three Specialty Retailer stocks, starting with #3.

Stock #3: Arko Corp. (ARKO)

ARKO operates convenience stores and sells fuel and merchandise to retail and wholesale customers. The company carries out its operations through four segments: Retail; Wholesale; Fleet Fueling; and GPMP.

On August 28, ARKO announced the opening of its newest Handy Mart store in Newport, North Carolina. The 5,600-square-foot store that offers a range of food and drinks could boost the company’s sales and strengthen its market presence in the area.

ARKO’s trailing-12-month cash per share of $2.52 is 5% higher than the industry average of $2.40. Moreover, the stock’s trailing-12-month asset turnover ratio of 2.42x is 144.8% higher than the industry average of 0.99x.

For the fiscal 2024 third quarter that ended September 30, ARKO’s total revenues came in at $2.28 billion. Its operating income was reported to be $41.57 million. Plus, the company’s adjusted EBITDA came in at $78.78 million.

Additionally, net income attributable to ARKO totaled $9.67 million, while net income per share attributable to common shareholders was $0.07.

Analysts expect ARKO’s revenue for the fiscal year ending December 2025 to come in at $8.79 billion. Its EPS for the same period is expected to rise 107.9% year-over-year to $0.35.

Shares of ARKO have surged 6.9% over the past six months and 13.6% over the past nine months, closing the last trading session at $6.53.

ARKO’s POWR Ratings mirror its solid fundamentals. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

ARKO has a B grade for Stability and Value. Within the Specialty Retailers industry, it is ranked #11 out of 38 stocks.

In addition to the POWR Ratings highlighted above, you can check ARKO’s ratings for Growth, Momentum, Quality, and Sentiment here.

Stock #2: Murphy USA Inc. (MUSA)

MUSA markets retail motor fuel products and convenience merchandise. The company operates retail locations under the Murphy USA, Murphy Express, and QuickChek brands, including non-fuel convenience stores.

MUSA’s trailing-12-month ROCE of 60.92% is 440.5% higher than the industry average of 11.27%. Its trailing-12-month ROTC of 15.15% is 144.1% higher than the sector average of 6.21%. Likewise, the stock’s trailing-12-month asset turnover ratio of 4.20x is 324.2% higher than the industry average of 0.99x.

For the fiscal third quarter that ended September 30, 2024, MUSA reported total operating revenues of $5.24 billion, with an operating income of $221.60 million. Adjusted EBITDA reached $285.60 million. The company also posted a net income of $149.20 million and earnings of $7.20 per common share.

For the fiscal 2025 first quarter ending March 2025, Street expects MUSA’s revenue and EPS to increase 3.7% and 59.1% year-over-year to $5.02 billion and $4.96, respectively.

The stock has surged 6.7% over the past six months and 41.9% over the past year to close the last trading session at $511.53.

MUSA’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

MUSA has a B grade for Value. It is ranked #10 out of 38 stocks in the Specialty Retailers industry.

To access MUSA’s Growth, Momentum, Stability, Sentiment, and Quality ratings, click here.

Stock #1: Sally Beauty Holdings, Inc. (SBH)

SBH is a specialty retailer and distributor of professional beauty supplies. The company has two segments: Sally Beauty Supply and Beauty Systems Group. It offers hair color and care products, skin and nail care products, and styling tools under Wella, Paul Mitchell, and L’Oreal brands.

On October 24, SBH expanded its styling tool collection with the unveiling of its ion Luxe 8-In-1 Airstyler Pro. With new and improved features, the new release could enhance SBH’s customer growth and boost its revenue growth.

SBH’s trailing-12-month gross profit margin of 50.86% is 35.1% higher than the industry average of 37.77%. Its trailing-12-month ROCE of 26.98% is 139.4% higher than the 11.27% industry average. Additionally, the stock’s trailing-12-month asset turnover ratio of 1.35x is 36.2% higher than the sector average of 0.99x.

For the fiscal 2024 fourth quarter that ended September 30, SBH’s net sales increased 1.5% year-over-year to $935.03 million. Its adjusted operating earnings grew 11% from the year-ago value to $88.02 million. Also, the company’s adjusted EBITDA rose 8.1% from the prior year’s quarter to $118.14 million.

Moreover, the company’s adjusted net income and adjusted EPS increased 14.5% and 19% year-over-year to $52.33 million and $0.50, respectively.

The consensus revenue and EPS estimates of $943.80 million and $0.43 for the fiscal 2025 first quarter ending December 2024 exhibit a year-over-year rise of 1.3% and 10.3%, respectively. Additionally, the company surpassed the consensus EPS estimates in three of the four trailing quarters.

Shares of SBH have surged 10.6% over the past six months, closing the last trading session at $11.37.

SBH’s stable prospects are apparent in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

SBH has an A grade for Value and a B for Quality. Within the same industry, it is ranked #7 out of 38 stocks.

Click here to access SBH’s ratings for Growth, Stability, Sentiment, and Momentum.

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MUSA shares were unchanged in premarket trading Tuesday. Year-to-date, MUSA has gained 44.02%, versus a 26.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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