Specialty retailers benefit from robust consumer spending, easing inflation, rising disposable income, and the availability of attractive credit options. With the market looking forward to rate cuts following the Fed pause in its last meeting, specialty retailers remain well-positioned for growth.

Thus, stocks like Ulta Beauty, Inc. (ULTA), FIGS, Inc. (FIGS), and Best Buy Co, Inc. (BBY) could be profitable additions to your watchlist this holiday season. Before diving deeper into the fundamentals of these stocks, let’s discuss why the specialty retail industry is well-positioned for growth.

Despite concerns of a slowing economy, retail sales are holding up. Although October retail sales, excluding autos and gas, fell by 0.08%, overall retail and core retail sales are both up 2.6% year-over-year. Moreover, inflation for October was flat month-over-month in October, providing a hopeful sign for consumers.  

On top of it, the National Retail Federation (NRF) projects shoppers to spend a record amount of money, including more online spending, this holiday season. Overall holiday spending between November 1 and December 31 is forecasted to be between $957.3 billion and $966.6 billion, exhibiting its typical growth rate of 3% to 4%.

Furthermore, the retail sector’s long-term prospects also look bright. The global retail market is expected to grow to $37.67 trillion in 2027 at a CAGR of 7.4%.

With such constructive trends in mind, let’s analyze the fundamentals of these three Specialty Retailers stocks.

Stock #3: Ulta Beauty, Inc. (ULTA)

ULTA operates as a retailer of beauty products. The company’s offerings include cosmetics, fragrances, skincare and haircare products, bath and body products, salon styling tools, professional hair products, salon services, and nail services.

The company repurchased 593,629 shares of its common stock at a cost of $275.5 million in the second quarter. In the same quarter, ULTA also added three new stores. This should boost the company’s prospects.

During the fiscal second quarter that ended July 29, 2023, ULTA’s net sales increased 10.1% year-over-year to $2.53 billion. The company’s gross profit increased 7.1% from the prior year period to $993.61 million. Net income grew 1.5% year-over-year to $300.10 million, while its net income per common share increased 5.6% from the year-ago value to $6.02.

ULTA’s trailing-12-month Return On Common Equity (ROCE) and Return On Total Assets (ROTA) of 66.08% and 24.05% are 491.4% and 519.2% higher than the industry average of 11.17% and 3.88%, respectively. Its EBIT Margin of 15.31% is 106.8% higher than the industry average of 7.41%.

ULTA’s EPS is expected to increase 12.7% year-over-year to $7.53 for the fiscal fourth quarter ending January 2024. The company’s revenue for the same quarter is expected to increase 9.3% from the prior-year quarter to $3.53 billion. Additionally, it topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.

The stock has gained 2.9% over the past month to close its last trading session at $390.50.

ULTA’s fundamentals are reflected in its POWR Ratings. ULTA has a B grade for Quality. ULTA is ranked #27 out of 42 stocks in the Specialty Retailers industry. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Click here to access ULTA’s Growth, Value, Stability, Sentiment, and Momentum ratings.

Stock #2: FIGS, Inc. (FIGS)

FIGS is a healthcare apparel and lifestyle brand. Its offerings include scrub wear, lifestyle apparel, and other non-scrub offerings, such as lab coats, under scrubs, outerwear, loungewear, compression socks, footwear, and masks.

On November 3, FIGS opened its first permanent physical retail space. Through this expansion, the company intends to cater to its customers’ in-store demands. The company also plans to open its next Community Hub in the first half of 2024.

During the third quarter of fiscal 2023, which ended September 30, FIGS’ net revenue increased 10.7% year-over-year to $142.36 million. The company’s adjusted EBITDA increased 16.2% from the prior-year period to $24.42 million, while its net income increased 52% from the prior-year quarter to $6.15 million. Its adjusted EPS came in at $0.03, up 50% year-over-year.

FIGS’ trailing-12-month gross profit margin of 69.27% is 93.8% higher than the industry average of 35.74%. Its levered FCF margin of 13.26% is 157.3% higher than the industry average of 5.15%.

Analysts expect FIGS to report an EPS of $0.02 for the quarter ending March 2024, indicating an increase of 63.8% from the previous-year quarter. The company’s revenue is expected to increase 7.9% year-over-year to $129.68 million. Moreover, the company topped consensus EPS and revenue estimates in each of the trailing four quarters.

Over the past month, the stock has declined 5.9% to close the last trading session at $5.87.

FIGS’ fundamentals are reflected in its POWR Ratings. It has a grade of B for Quality. It is ranked #25 of 42 stocks in the industry. 

Click here to see additional ratings for FIGS’ Growth, Value, Momentum, Stability and Sentiment.

Stock #1: Best Buy Co, Inc. (BBY)

BBY provides a retail platform for a wide range of products across categories, such as consumer electronics, mobile phones, fitness products, daily-use appliances, software, and others. The company sales channel comprises both online and offline modes. It operates in two segments: Domestic and International.

On August 29, BBY announced a regular quarterly cash dividend of $0.92 per common share. The quarterly dividend was payable on October 10, 2023. Its annual dividend of $3.68 yields 5.74% on prevailing prices. Its dividend payouts have increased at a 19.2% CAGR over the past three years and a 16.6% CAGR over the past five years.

BBY’s revenues were reported to be $9.58 billion for the second quarter that ended July 29, 2023. For the six months ended July 29, its cash, cash equivalents, and restricted cash balance increased 29.4% from the prior-year period to $1.49 billion.

As of July 29, 2023, the company’s total current liabilities reduced 2.5% to $8.43 billion versus $8.65 billion as of July 30, 2022.

BBY’s trailing 12-month ROCE of 45.05% is 303.2% higher than the industry average of 11.17%, while its trailing-12-month cash from operations of $2.71 billion is significantly higher than the industry average of $240.04 million.

The consensus EPS estimate of $2.66 for the next fiscal quarter (ending January 2024) reflects a 1.9% year-over-year improvement. Its revenue is estimated to increase 3.2% from the prior-year period to $15.21 billion for the same quarter. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all four trailing quarters.

Over the past five days, the stock has declined 2.7% to close the last trading session at $63.84.

BBY’s prospects are reflected in its POWR Ratings. BBY has a B grade for Value and Quality. Out of the 42 stocks in the same industry, it is ranked #19.

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

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ULTA shares were trading at $399.63 per share on Tuesday afternoon, up $9.13 (+2.34%). Year-to-date, ULTA has declined -14.80%, versus a 18.63% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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