The retail industry has remained strong lately due to robust holiday spending. According to the Mastercard Spending Pulse, U.S. retail sales rose 7.6% year-over-year from November 1 to December 24. Moreover, the Personal Consumption Expenditures Price Index increased by 5.5% from a year earlier in November.

Furthermore, the 10.6% annual growth in online sales and the fact that e-commerce now makes up 21.6% of all retail sales (up from 20.9% in 2021) indicate that consumers are displaying a greater affinity for online shopping. The global smart retail market is expected to grow at a CAGR of 22.8% to $72.9 billion by 2028.

Given the industry's promising growth prospects, it could be wise to add fundamentally strong retail stocks Ulta Beauty, Inc. (ULTA) and Murphy USA Inc. (MUSA) to your watchlist in 2023. However, Party City Holdco Inc. (PRTY) might be best avoided now, given its financial weakness and bleak growth attributes.

Stocks to Buy:

Ulta Beauty, Inc. (ULTA)

ULTA owns and runs specialty retail stores that provide cosmetics, fragrances, haircare, skincare goods, and other related accessories and services. The stores also provide full-service hairdressers. The company owns and operates roughly 1,343 outlets in 50 states.

For the fiscal 2023 third quarter ended October 29, 2022, ULTA’s net sales increased 17.2% year-over-year to $2.34 billion, while its gross profit grew 22% from the year-ago value to $962.82 million. Its operating income rose 27.3% year-over-year to $361.86 million. The company’s net income increased 27.5% year-over-year to $274.59 million, while its EPS stood at $5.34, a 35.6% increase from the year-ago value.

Analysts expect ULTA’s EPS and revenue for the current fiscal year (ending January 2023) to increase 27.1% and 15.6% year-over-year to $22.86 and $9.98 billion, respectively.

In addition, the company’s EPS and revenue for the next fiscal year are expected to grow 5.2% and 7.2% from the previous year to $24.04 and $10.70 billion, respectively. Furthermore, ULTA has surpassed its consensus EPS in all four trailing quarters, which is impressive.

Shares of ULTA have gained 3.1% over the past five days and 15.9% over the past six months to close the last trading session at $464.00.

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

The stock has an A grade for Quality and a B for Sentiment. Within the Specialty Retailers industry, it ranked #13 of 46 stocks.

To see additional POWR ratings for Stability, Growth, Value, and Momentum for ULTA, click here.

Murphy USA Inc. (MUSA)

MUSA is involved in marketing convenience goods and retail motor gasoline products. The business runs retail establishments under the QuickChek, Murphy USA, and Murphy Express brands. It also operates a few wholesale and product supply assets, including product distribution terminals and pipeline positions.

For the fiscal 2022 third quarter ended September 30, MUSA’s total operating revenues increased 34.7% year-over-year to $6.19 billion, while its income from operations rose 97% from the previous year’s quarter to $311.90 million. The company’s net income came in at $219.50 million, an 111.1% increase year-over-year, and its EPS stood at $9.28, up 133.2% from the year-ago value.

The consensus EPS estimate of $28.70 for the current fiscal year (ending December 2022) indicates an 88.2% year-over-year improvement. Likewise, the consensus revenue estimate of $23.75 billion for the current year indicates a rise of 36.8% from the previous year. Moreover, MUSA has surpassed its consensus EPS in all four trailing quarters.

The stock has gained 18.8% over the past six months and 46.3% over the past year to close the last trading session at $286.01.

MUSA’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

The stock has a B grade for Growth, Value, and quality. Within the Specialty Retailers industry, it ranked #2 of 46 stocks.

Click here to see additional ratings of MUSA for Stability, Sentiment, and Momentum.

Stock to Avoid:

Party City Holdco Inc. (PRTY)

PRTY is a global designer, manufacturer, and distributor of party supplies.  The company operates through two segments, Retail and Wholesale. It sells metallic and latex balloons, paper, and plastic tableware, Halloween and other costumes, accessories, novelties, presents, and stationery.

On December 27, the New York Stock Exchange (NYSE) informed PRTY that it is at risk of being delisted for failing to maintain an average stock price of $1 per share over a 30-day trading period. The stock will still trade under the ticker PRTY, but a ".BC" will be appended to show that the company does not meet NYSE requirements.

For the fiscal 2022 third quarter ended September 30, PRTY’s net sales declined 1.6% from the year-over-year to $502.19 million, while its gross profit decreased 13.7% from the year-ago value to $158.45 million. The company’s loss from operations stood at $153.53 million compared to an income of $20.05 million in the previous year’s quarter.

In addition, the company's adjusted net loss and adjusted net loss per share widened by 5,397.5% and 16,350% year-over-year to $157.17 million and $3.29, respectively.

Analysts expect PRTY to report a loss per share of $1.36 for the current fiscal year (ending December 2022). Moreover, the company’s revenue for the same year is expected to come at $2.14 billion, a 1.3% decline year-over-year. The stock has slumped 55.2% over the month and 94.2% over the past year to close the last trading session at $0.33.

PRTY’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.

The stock has an F grade for Stability and a D for Momentum, Sentiment, and Quality. Within the same industry, it ranked #46 of 47 stocks.

Click here to see the additional rating of PRTY for Value and Growth.

ULTA shares were trading at $463.35 per share on Wednesday afternoon, down $0.65 (-0.14%). Year-to-date, ULTA has gained 12.37%, versus a -18.96% rise in the benchmark S&P 500 index during the same period.

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.

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