Specialty retail flourishes by tapping into evolving consumer preferences, including eco-friendly products, artisanal goods, and unique flavors, which build brand loyalty and encourage repeat purchases. Exceptional customer service, personalized recommendations, and targeted marketing strategies further enhance satisfaction and boost sales.

With these factors in play, fundamentally strong specialty retail stocks like Arko Corp. (ARKO - Get Rating), Sally Beauty Holdings, Inc. (SBH - Get Rating), and Upbound Group, Inc. (UPBD - Get Rating) present compelling investment opportunities.

Specialty retail caters to a wide range of consumer preferences, leveraging both online and offline channels to maximize market reach. Utilizing consumer insights, predictive testing, and iterative refinement minimizes risks and ensures products align with market demands. Its ability to adapt to emerging trends and shifting consumer values underscores its potential for growth in evolving markets.

The specialty products market is poised for growth, projected to reach $6.80 billion this year with an 8.9% CAGR, fueled by the rise of e-commerce and increasing consumer spending. This growth is further supported by steady global economic expansion and ongoing disinflation, despite regional challenges. Notably, the US economy is outperforming expectations, reinforcing optimism for the sector’s future.

Additionally, the sector thrives on innovations in packaging, customization, and personalization, particularly within lifestyle, beauty, and household goods, enhancing consumer appeal and driving growth. Considering these conducive trends, let’s analyze the fundamental aspects of the three Specialty Retailers picks, starting with the third choice.

Stock #3: Arko Corp. (ARKO - Get Rating)

ARKO operates convenience stores in the United States. It operates through Retail, Wholesale, Fleet Fueling, and GPMP segments.

In terms of the trailing-12-month asset turnover ratio, ARKO’s 2.42x is 144% higher than the 0.99x industry average.

ARKO’s total revenue for the third quarter ending September 30, 2024, was $2.28 billion. Its operating income was reported as $41.57 million. Additionally, the company’s adjusted EBITDA was $78.78 million, and its net income attributable to ARKO totaled $9.67 million, or $0.07 per share.

Street expects ARKO’s EPS for the quarter ending June 30, 2025, to rise 36.4% year-over-year to $0.15. Over the past nine months, ARKO’s stock has gained 39.4% to close the last trading session at $6.58.

ARKO’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Value and Stability. It is ranked #13 out of 38 stocks in the Specialty Retailers industry. Click here to see ARKO’s Growth, Momentum, Sentiment, and Quality ratings.

Stock #2: Sally Beauty Holdings, Inc. (SBH - Get Rating)

SBH operates as a specialty retailer and distributor of professional beauty supplies. The company operates through two segments, Sally Beauty Supply and Beauty Systems Group.

In terms of the trailing-12-month Return on Common Equity, SBH’s 26.98% is 147.9% higher than the 10.88% industry average. Its 1.35x trailing-12-month asset turnover ratio is 35.7% higher than the 0.99x industry average. Also, the stock’s 5.49% trailing-12-month Return on Total Assets is 40.6% higher than the 3.91% industry average.

For the fiscal fourth quarter that ended September 30, 2024, SBH’s net sales increased marginally year-over-year to $935.03 million, while its gross profit rose 2.7% year-over-year to $479.20 million. During the same period, the company’s non-GAAP net earnings increased 14.5% from the prior year to $52.33 million, and its EPS rose 19% year-over-year to $0.50.

For the quarter ended December 31, 2024, SBH’s EPS is expected to increase 10.7% year-over-year to $0.43. Its revenue for the same quarter is expected to rise 1.3% year-over-year to $943.78 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 6.3% to close the last trading session at $11.

SBH’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.

It has an A grade for Value and a B for Quality. It is ranked #9 in the same industry. Beyond what we stated above, we also have given SBH grades for Growth, Momentum, Stability, and Sentiment. Get all the SBH ratings here.

Stock #1: Upbound Group, Inc. (UPBD - Get Rating)

UPBD leases household durable goods to customers on a lease-to-own basis in the United States, Puerto Rico, and Mexico. It operates through four segments: Rent-A-Center, Acima, Mexico, and Franchising.

On December 12, 2024, UPBD announced it will acquire Brigit, a financial health technology company, for up to $460 million. This acquisition is expected to expand UPBD’s offerings, enhance financial solutions for underserved consumers, and boost Adjusted EBITDA by $25–$30 million in 2025 and $70–$80 million in 2026.

On November 21, 2024, UPBD announced a collaboration with Google Cloud to implement advanced AI solutions, enhancing customer experience, personalization, and product offerings across Acima Leasing and Rent-A-Center. The initiative focuses on expanding leasable products, improving website engagement, and automating operations for greater efficiency.

In terms of the trailing-12-month Return on Common Equity, UPBD’s 13.44% is 23.5% higher than the 10.88% industry average. Its 48.94% trailing-12-month gross profit margin is 29.8% higher than the 37.70% industry average. Likewise, the stock’s 1.64x trailing-12-month asset turnover ratio is 64.9% higher than the 0.99x industry average.

During the third quarter, which ended September 30, 2024, UPBD reported total revenues of $1.07 billion, up 9.2% from the prior year’s quarter. The company’s non-GAAP operating profit of $98.21 million reflects growth of 12.7% from the prior year’s quarter. Furthermore, its non-GAAP net earnings came in at $53.34 million, or $0.95 per share, up 18.4% and 20.2% year-over-year, respectively.

Analysts expect UPBD’s EPS and revenue for the quarter ended December 31, 2024, to increase 26.3% and 3.8% year-over-year to $1.02 and $1.06 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has declined 1.9% to close the last trading session at $29.30.

UPBD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

It has an A grade for Growth and a B for Quality. Within the Specialty Retailers industry, it is ranked first. To see UPBD’s Value, Momentum, Stability, and Sentiment ratings, click here.

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UPBD shares were trading at $29.42 per share on Thursday afternoon, up $0.12 (+0.41%). Year-to-date, UPBD has gained 0.86%, versus a 1.02% 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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