Inflation came in lower-than-expected at 8.5% in July, providing a breather after a long. The slowdown in price increases raised hopes that the Fed might ease its monetary policy tightening.

However, Minneapolis Federal Reserve Bank President Neel Kashkari believes that rate hikes are still necessary and refuses to rule out a potential recession. Opening that recession risk will not deter him, Kashkari said, “We have to get back to 2% inflation.”

According to the Conference Board, U.S. real GDP will grow a mere 1.3% year-over-year in 2022 and then slow down to 0.2% in 2023, indicative of the recessionary pressures. However, on the other hand, retail sales rose more than expected in June, despite the slowing economy.

Investors’ interest in retailer stocks is evident from the SPDR S&P Retail ETF’s (XRT) 12.5% gains over the past month compared to SPDR S&P 500 Trust ETF’s (SPY) 8.1% returns.

Therefore, we think investors could consider buying retailer stocks Ulta Beauty Inc.(ULTA), Build-A-Bear Workshop, Inc. (BBW), and Winmark Corporation (WINA) despite recession fears, given their fundamental strength.

Ulta Beauty Inc. (ULTA)

ULTA operates as a retailer of beauty products. The company operates around 1,308 retail stores across 50 states and distributes its products through its website ulta.com and mobile applications.

On August 3, 2022, ULTA officially launched Prisma Ventures, a digital innovation fund set to invest $20 million in emerging technology start-ups for improved online shopping experiences. Prisma Ventures has partnered with and invested in various start-ups since its announcement, which enabled greater personalization and diagnosis within Ulta Beauty’s digital skin and hair experiences.

ULTA’s net sales came in at $2.35 billion for the first quarter ended April 30, 2022, up 21% year-over-year. Its net income increased 43.9% year-over-year to $331.39 million. Moreover, the company’s EPS came in at $6.30, up 53.7% year-over-year.

Analysts expect ULTA’s revenue to increase 10.3% year-over-year to $9.52 billion in 2023. Its EPS is estimated to increase 12.3% year-over-year to $20.19 in 2023. It has surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 5.5% to close the last trading session at $381.48.

ULTA has an A grade in Quality and a B grade in Sentiment in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Within the Specialty Retailers industry, it is ranked #12 out of 45 stocks. Click here to see ULTA's additional POWR Ratings for Momentum, Value, Growth, and Stability.

Build-A-Bear Workshop, Inc.(BBW)

BBW operates as a multi-channel retailer of plush animals and related products. The company operates through three segments: Direct-to-Consumer; Commercial; and International Franchising. It operates around 346 stores in total.

On May 26, 2022, Sharon Price John, BBW’s President, and CEO, said, “Our digital demand this quarter was greater than our total e-commerce sales for the entire 2017 fiscal year, demonstrating the progress made in our digital transformation over the last five years.”

BBW’s total revenues came in at $117.66 million for the first quarter ended April 30, 2022, up 28.3% year-over-year. Its net income increased 36.7% year-over-year to $14.19 million. The company’s EPS came in at $0.89, up 34.8% year-over-year.

Street expects BBW’s revenue to increase 10.4% year-over-year to $454.50 million in 2023. Its EPS is estimated to increase 30% per annum for the next five years. Also, it surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 18.9% to close the last trading session at $16.99.

BBW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. It has an A grade for Quality and a B grade for Sentiment.

BBW is ranked #10 in the Specialty Retailers industry. Click here to see the additional POWR Ratings for BBW (Growth, Momentum, Stability, and Value).

Winmark Corporation (WINA)

WINA and its subsidiaries operate as a franchisor of retail store concepts that buy, sell, trade, and consign used merchandise primarily in the United States and Canada. The company operates through two segments, Franchising and Leasing.

On June 14, 2022, WINA announced that it had signed franchise agreements to add eleven more Play It Again Sports locations to its existing base of 272 stores across North America. This expansion is expected to extend the company’s consumer base and solidify future business prospects.

WINA’s total revenue increased marginally year-over-year to $19.07 million for the second quarter ended June 25, 2022. Its net income increased marginally year-over-year to $9.03 million, while its EPS came in at $2.54, up 9% year-over-year.

Over the past year, the stock has gained 14.2% to close the last trading session at $226.40.

WINA has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B grade for Stability and Sentiment. It is ranked #11 in the same industry. We’ve also rated WINA for Momentum, Value, and Growth. Get all the WINA ratings here.

ULTA shares were trading at $390.07 per share on Thursday afternoon, up $8.59 (+2.25%). Year-to-date, ULTA has declined -5.40%, versus a -10.87% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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