Retail stocks are shares in publicly traded businesses that sell products or services to the public. Some retailers sell non-discretionary products (things people need), some sell discretionary items (things people want), and others sell services and experiences.
Many investors buy retail stocks because they allow them to own portions of the businesses where they shop. But there's a lot more you should consider before you invest.
It has been a turbulent period for retailers in the past few years. E-commerce sales boomed during the COVID-19 pandemic as consumers avoided stores, and sales of certain products soared. Retailers battled shortages and supply chain constraints for much of the pandemic as they scrambled to meet consumer demand and then grappled with inflation spiking to a 40-year high soon after.
But now that the pandemic is in the rear view and inflation has cooled, the retail landscape has somewhat normalized, it could be time to take a closer look. Let's delve into some of the top retail stocks and what you need to know about investing in retail companies.
Four leading retailers
Four publicly traded retailers leading their industries
There are hundreds of publicly traded retailers, but these four have risen to the tops of their industries:
| Company ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| NASDAQ:AMZN | $2.3 trillion | 0.00% | Multiline Retail |
| NYSE:HD | $386 billion | 2.36% | Specialty Retail |
| NASDAQ:LULU | $20 billion | 0.00% | Textiles, Apparel and Luxury Goods |
| NASDAQ:ULTA | $24 billion | 0.00% | Specialty Retail |
1. Amazon
As the preeminent e-commerce retailer, Amazon (AMZN -0.45%) got started by selling books and now operates a marketplace enabling the online buying and selling of almost everything. Amazon also owns Whole Foods Market, which gives it a ready-made network of brick-and-mortar retail stores to further engage customers.
Brick-and-Mortar
In addition to growing its business, Amazon is focused on boosting productivity and trimming expenses. The bottom line has benefited tremendously. Amazon also has the leading cloud services platform, Amazon Web Services (AWS), which is also the fastest growing (and most profitable) part of its business.
With its immense scale, the online retail giant is well positioned to lead the e-commerce market in the long run. Smaller players without Amazon's scale and logistical muscle have struggled to compete, and that isn't likely to change anytime soon.
2. Home Depot
The home improvement retailer is best known for its big box warehouse stores and extensive inventory. Serving both do-it-yourself homeowners and professional contractors, Home Depot (HD 0.19%) is consistently expanding both sales and earnings. The company has done an excellent job with omnichannel retail, with things like ship-to-store and in-store pickup of mobile orders.
Home Depot's sales growth has been weak for several years due to slowing consumer spending after years of surging demand for renovation and remodeling projects during the pandemic. In the first quarter of 2025, comparable sales in the United States increased by just 0.2%. Consumers continue to spend on smaller projects, but spending in big-ticket categories is weakening.
Elevated interest rates are a big source of this lull, since they eat away at household spending power and make it difficult to tap into home equity to fund costly projects. But in the long run, the company has plenty of room left to grow within a fragmented industry.
3. Lululemon Athletica
As a pioneer in athletic apparel, Lululemon Athletica (LULU -1.19%) initially focused on making yoga clothing. The company has gradually courted a wider set of customers who want to stay fit and dress comfortably.
Recent results have been strong in a difficult economic climate, with sales growing by 7% year over year in the most recent quarter, including stellar 19% growth internationally. Plus, Lululemon's gross margin and adjusted operating margin expanded by 60 basis points compared with a year ago.
The popularity of athleisure has staying power, and Lululemon leads the industry. The retailer is on track to reach its goal of annual sales of $12.5 billion by 2026 and to grow even further from there. This growth will be driven by increasing sales of men's clothing, doubling down on direct-to-consumer sales, and continuing its impressive international expansion.
Lululemon's stock is well off its highs due to growth concerns and international headwinds, but management seems to think it's a bargain, spending $430 million on buybacks in the most recent quarter alone.
4. Ulta Beauty
Tapping into the trend of providing experiences that lure shoppers into stores, Ulta Beauty (ULTA -0.49%) offers in-store salon treatments to its customers. The concept has taken off, and its stores were attracting plenty of customers before the pandemic struck.
Ulta's sales continue to be strong in a tough environment for discretionary spending, with net sales up by about 4.5% year over year in the latest quarter. Some of the growth came from new store openings, but comparable sales were up almost 3%, which is impressive given the economic uncertainty.
Total revenue should top $11.5 billion in 2025, based on the company's guidance. A recession would likely hurt sales and profits in the short term, but Ulta's long-term growth prospects are very much intact.
With all of that in mind, Ulta could be in a great position to thrive as inflation continues to cool and interest rates come down. Management seems to think the stock is a bargain and is likely to spend almost $1 billion on buybacks in 2025.
Revenue
Identifying top retail stocks
How to identify the best retail stocks
Finding high-quality retail companies requires looking at some key aspects of the company's retail business. The strongest retailers perform well based on these key metrics:
- Sales growth: The best retail companies consistently expand the revenue they generate from the products they sell.
- Same-store sales: Same-store sales, or comparable-store sales, is a retail-specific revenue metric that evaluates revenue growth for stores in business for at least a year.
- Earnings growth: A retailer can grow revenue but remain unprofitable. Investors should be cautious about buying shares in retailers that struggle to increase their earnings as measured by earnings per share.
- Seasonality: Many retailers do a large part of their annual business during the holiday season in November and December.
- Real estate metrics: If a retailer owns a lot of real estate, its value can comprise a huge portion of the company's overall worth. Investors can also evaluate how efficiently a retail company uses its real estate with metrics such as sales per square foot.
- Growth of e-commerce sales: The best retailers use their network of stores to their advantage by offering services such as in-store pickup and local delivery. Retail businesses without a strong online presence will likely have increasing difficulty competing with their peers.
- Balance sheet strength: When considering investing in a retailer, look for plenty of cash and manageable debt on its balance sheet.
Related investing topics
Are retail stocks right for you?
Are retail stocks right for you?
It's always fun to invest in companies you know and love, and retail stocks often fit the bill. Focus on the retailers with the strongest business fundamentals -- low debt levels, healthy cash flows, and strong competitive positions -- to give yourself the best chance to make money for your investment portfolio.
FAQ
Investing in retail stocks FAQ
What is the best retail stock?
It's tough to call one retail stock the best. However, Amazon has grown into a dominant force in the retail industry. The company's immense scale, vast logistics network, and popular Prime membership program make it tough to beat.
What is a publicly traded retailer?
A publicly traded retailer is a retail company with shares listed on a major public stock exchange. When a retailer is publicly traded, shares can be bought and sold by investors.
Is investing in retail good?
The retail industry is essential, but not all retailers are created equal. When considering investing in a retail stock, look for those with competitive advantages, like a strong brand or economies of scale.
