Retail has always been a tough business, but the unrelenting rise of e-commerce is putting ever more pressure on brick-and-mortar retailers. Many, like department store chain Macy's, have responded by shuttering stores; others are following a path like Wal-Mart, which is making multibillion-dollar e-commerce acquisitions in an effort to transform itself.
There are a few retailers that haven't yet felt any real negative effects from the rise of e-commerce. If you're looking for a retail stock that you can buy and hold without much fuss, Ulta Salon, Cosmetics & Fragrance (NASDAQ:ULTA), Costco (NASDAQ:COST), and The Home Depot (NYSE:HD) are good choices.
A beauty behemoth
Sales of mass-market beauty products in the U.S. grew by just 2% last year, but the market for prestige beauty products expanded by 7%, with makeup sales surging 13%, according to NPD. There has been no bigger beneficiary of this trend toward fancier beauty products than Ulta, which has posted incredible growth for years. For its latest quarter, Ulta reported a 14.4% rise in comparable-store sales and a 21.9% increase in total sales, with the company opening two dozen new stores.
Given this performance, it should be no surprise that the stock has exploded, more than tripling over the past five years. At this point, Ulta is feeling no real pressure from online-only retailers, but it is investing in e-commerce nonetheless. It's online business is small but growing fast, generating just $55.9 million of sales during the latest quarter, up 54.9% year over year.
With the retail business booming, Ulta is a rare retail stock that can simply be bought and ignored. The stock is expensive at 37 times analysts' estimates for full-year earnings, so it's certainly not for everyone. But for people looking for a rock-solid retail stock with plentiful growth prospects, it's a good bet.
Slow and steady growth
If there's one retailer investors don't need to worry about, it's Costco. The warehouse club has been steadily expanding, growing revenue and profit in lockstep as it builds new stores. Costco spends nothing on advertising, instead relying on loyalty earned through low prices and exceptional customer service. That strategy has worked brilliantly so far.
Costco isn't completely immune to online competition, and the company will eventually need to sharpen its focus on e-commerce. However, much of the company's bottom line is derived from membership fees, and it has had no problem attracting and retaining members. This gives Costco plenty of time to get its e-commerce strategy right.
Costco stock is expensive, trading for around 29 times analysts' estimates for full-year earnings. Its earnings growth isn't all that impressive, either, but investors have been willing to pay up for the extremely consistent retailer.
While many portions of the retail industry are in upheaval, home improvement specialists like Home Depot are firing on all cylinders. During the latest quarter, Home Depot reported comparable sales growth of 4.7%, an impressive figure for a company with annual sales surpassing $90 billion. The housing market has been kind to the company, with consumers more than willing to spend on their homes.
Home Depot is protected to a degree from online competition, although the company has a sizable e-commerce operation of its own. Online sales totaled $3.76 billion in 2014, with about a quarter of those sales coming from customers buying online and picking up in store. Like Costco, Home Depot isn't feeling much pressure from online-only retailers at the moment, but it's investing more in e-commerce to ensure that remains the case.
Home Depot's fortunes are ultimately tied to the housing market, so investors should check in from time to time. But this is not a stock that investors need to reevaluate every quarter. The company has a long history of solid execution, and investors can expect more of the same going forward.
Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale and Ulta Salon, Cosmetics and Fragrance. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.