Changing consumer profiles and demographics, increasing urbanization, improving infrastructure, and increasing the number of international brands are key factors fueling the specialty retail market.

Given the industry’s tailwinds, investors could consider buying fundamentally sound specialty retailers stocks, The ODP Corporation (ODP - Get Rating), Sally Beauty Holdings, Inc. (SBH - Get Rating), and Upbound Group, Inc. (UPBD - Get Rating) thriving in niche markets.

The U.S. retail market is expected to grow at a CAGR of 2.4% from 2024 to 2032. This growth is driven by several factors, including the increasing popularity of e-commerce shopping, population growth, and a surge in partnerships, collaborations, and mergers and acquisitions (M&As) among leading industry players.

Additionally, the specialty retail industry is poised for steady growth, driven by evolving consumer preferences, niche product offerings, and the expansion of online and omnichannel strategies. Increased focus on personalization and premium customer experiences are set to fuel market demand further.

Considering these favorable trends, let’s take a closer look at the fundamentals of the three Specialty Retailers picks, starting with number #3.

Stock #3: The ODP Corporation (ODP - Get Rating)

ODP provides business services and supplies, products, and digital workplace technology solutions for small, medium, and enterprise businesses in the United States, Puerto Rico, and the U.S. Virgin Islands. The company operates through four divisions: ODP Business Solutions; Office Depot; Veyer; and Varis.

ODP’s trailing-12-month asset turnover ratio of 1.87x is 88.4% higher than the industry average of 0.99x.

For the fiscal third quarter that ended September 28, 2024, ODP’s sales were reported at $1.78 billion. Also, the company’s adjusted EBITDA stood at $62 million. Moreover, adjusted net income from continuing operations was reported at $24 million and $0.71 per share.

Analysts expect ODP’s revenue for the fiscal fourth quarter ending December 2024 to be $1.61 billion. In addition, the company’s EPS for the same quarter is expected to be $0.80.

Shares of ODP have plunged 19.9% over the past month to close the last trading session at $25.24.

ODP’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

ODP has an A grade for Value and a B for Quality. The stock is ranked #9 out of 38 stocks in the Specialty Retailers industry.

To see the other ratings of ODP for Growth, Sentiment, Momentum, and Stability, click here.

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 gross profit margin, SBH’s 50.86% is 34.2% higher than the 37.88% industry average. Its 5.49% trailing-12-month ROTA is 40.4% higher than the 3.91% industry average.

SBH’s net sales for the third quarter ended September 30, 2024, increased 1.5% year-over-year to $935.03 million. The company’s gross profit rose 2.7% over the prior-year quarter to $479.20 million. In addition, its net income and EPS rose 12.9% and 17.9% from the year-ago values to $48.06 million and $0.46, respectively.

For the quarter ending December 31, 2024, SBH’s EPS and revenue are expected to increase 10.3% and 1.3% year-over-year to $0.43 and 943.80 million, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. SBH’s stock has gained 12.6% over the six months to close the trading session at $13.71.

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

It has a B grade for Value and Quality. It is ranked #7 in the same industry. To access additional grades of SBH for Stability, Momentum, Sentiment, and Growth ratings, click 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.

UPBD’s trailing-12-month gross profit margin and levered FCF margin of 48.94% and 32.50% are 29.2% and 599.3% higher than the industry averages of 37.88% and 4.65%, respectively.

During the third quarter, which ended September 30, 2024, UPBD’s total revenues grew 9.2% year-over-year to $1.07 million. The company’s gross profit increased 2.8% year-over-year to $511.09 million. In addition, the company’s net income grew significantly year-over-year to $30.86 million and $0.55 per share, respectively.

The company’s revenue is expected to increase 4% year-over-year to $1.06 billion for the fourth quarter ending December 2024. The company’s EPS is expected to increase 27.3% year-over-year to $1.03 for the same quarter. It surpassed Street revenue and EPS estimates in each of the trailing four quarters.

Over the past month, UPBD’s stock has gained 16.2% to close the last trading session at $34.24.

UPBD’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. 

UPBD has an A grade for Growth and a B for Quality. Within the same industry, it is ranked #5.

To see UPBD’s additional ratings for Stability, Value, Momentum, and Sentiment, click here.

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UPBD shares were trading at $33.88 per share on Wednesday afternoon, down $0.36 (-1.05%). Year-to-date, UPBD has gained 3.18%, versus a 28.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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