Profit From Punks, Purses, and Perfumes

The U.S. economy has had its ups and downs in the past few years, to say the least. An anemic housing recovery and a sluggish job market threaten to slow meaningful domestic growth for the foreseeable future. Thankfully for investors, consumers still want to look good, and they're willing to pay extra to stay looking fabulous. A few standout companies are positioned to outperform the market, boosted by big growth opportunities, domestic and overseas alike.

Punks!
When it comes to the younger crowd, youth-oriented action sports retailer Zumiez (Nasdaq: ZUMZ  ) does very well in its niche. For investors, it's certainly worth a look, regardless of age. Zumiez already has hundreds of mall-based stores in the U.S. and about a dozen in Canada, and it plans to embrace e-commerce and expand cautiously into Europe, announcing June 19 that it's going to buy the Austrian action-sports online retailer Blue Tomato for $75 million. Investors thought the purchase was a wise one -- Zumiez shares rose immediately after the announcement. Jeffries analyst Randal Konik explains, saying that Zumiez "has done a great job ... gaining market share domestically over the past few years, and we believe an entrance into the international market is the next logical step."

Investors will pay a premium for Zumiez shares; the company has a P/E of 31 compared with the industry's more subdued 19 P/E. But with five-year sales growth more than 10 times the industry average and the five-year EPS rate triple the industry standard, this higher multiple is more than justified.

Purses!
More into luxury items? "Willing to pay extra"? Well, you're in luck, my friend! Michael Kors (NYSE: KORS  ) , luxury fashion retailer, has a $500 handbag with your name on it! Well, OK, with Michael Kors' name on it. And Michael Kors' name is worth a lot, apparently. The company's gross margins are almost 60%, nearly 17% higher than the industry average. To top it off, in the fourth quarter the company reported astounding 36% same-store sales growth, 120% earnings growth, and 71 new store openings, and it's expanding into the fashion-conscious Japanese market.

Now, you're rarely going to see this sort of meteoric growth and brand strength together without an imposing multiple attached to it. Kors is no exception; the company trades at 54 times earnings, more than double the industry average. Suddenly, this stock seems like quite a gamble -- until you consider that insiders own a whopping 50% of shares. With management heavily incentivized to enhance shareholder value, investors can rest a little easier.

Perfumes -- oh, my!
Still not stylish enough for you? Take a trip to Ulta Salon, Cosmetics, & Fragrance (Nasdaq: ULTA  ) , if you haven't already. There's probably one in your local mall, and if there isn't, wait about a week. Ulta already has about 450 U.S. stores, but it said recently it believes consumers may support more than 1,000. So whether you need some new perfume, a vitalizing skin product, or the benefits of a full-service salon, Ulta has you covered. But beware: Once you become an Ulta customer, you may become hopelessly addicted. Ulta's customer loyalty program boasts more than 9 million active members, whose transactions represent more than half of the company's annual sales. Staying classy ain't cheap nowadays. That's OK. What you spend at Ulta and Michael Kors will probably pay off handsomely in the form of free drinks once you head down to the local bar.

Maybe you're not the type who can rely on getting those free drinks at the local watering hole. Doesn't matter. If the company keeps growing the way it has in recent years (74% EPS growth in 2011 and 64% in 2012), every hour will feel like happy hour. Of course, you should decide whether a growth stock like this is your style before pouring money into it. Like the other two companies, Ulta commands a higher-than-average multiple, currently around 44 times earnings.

Zumiez, Michael Kors, and Ulta all boast robust earnings and sales growth, rapid store expansions, or new e-commerce initiatives. All three have been able to increase same-store sales and have plans for aggressively opening new locations, domestically and abroad.

You don't have to scan foreign exchanges to find companies well positioned for international growth. If you're more comfortable with familiar U.S. companies, you may want to check out this free report: "3 American Companies Set to Dominate the World."

Fool contributor John Divine owns none of the stocks mentioned in the story above. You can follow him on Twitter, @divinebizkid, and on Motley Fool CAPS, @TMFDivine. Motley Fool newsletter services have recommended buying shares of Zumiez and Ulta Salon. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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