Analysts' Top 3 Retail Picks Gearing Up for a Strong 2025

December 23, 2024 at 07:15 AM EST

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2025 may be a transformative year for the retail industry. Following a period of growing consumer confidence and increased discretionary spending amid lower inflation post-COVID, retailers have an opportunity to build loyalty among existing customers and expand their bases at the same time. However, there are potential obstacles as well—the retail space is becoming increasingly crowded, supply chain issues may become untenable depending upon geopolitical developments, and many companies are scrambling to determine how best to incorporate AI into everything from product development to marketing.

One key to success in the new year is maintaining momentum beyond the holiday rush—always a busy time for retail stores—into a period in which spending often trends downward. Investors keen to buy shares of retailers poised to outlast the end-of-year spending boom might look to Wall Street analyst commentary. Build-A-Bear Workshop Inc. (NYSE: BBW) and Haverty Furniture Companies Inc. (NYSE: HVT) are two retailers that stand out among analysts. A third company, Natural Grocers by Vitamin Cottage Inc. (NYSE: NGVC), is also worth noting for its stock price momentum toward the end of the year.

Build-A-Bear: Top- and Bottom-Line Growth, But Web Lags

Makers of a popular line of stuffed plush products and related accessories, Build-A-Bear has a corner on both direct-to-consumer and franchised (or business-to-consumer) strategies. The company enjoys powerful brand recognition, bolstered by its in-person and expanding Workshop experience for customers. It has also worked in recent quarters to build on its digital footprint, with some success.

Build-A-Bear reported a fairly strong third quarter, with $119 million in revenue and statutory EPS of 73 cents, both topping analyst predictions. Leveraging the workshop experience has been key to this growth. During the quarter, the company opened 17 new locations in a wider variety of settings, including many international locations, aiming to serve a larger percentage of its addressable market. This is part of the firm's plans to grow its total number of locations by about 25% in the three years leading to the start of 2025. New product launches, such as the company's Mini Beans collection, have also helped drive repeat and new customer growth.

Still, Build-A-Bear faces some uphill battles into the new year. The company's web sales continue to underperform expectations, which prompted Build-A-Bear to narrow its full-year revenue guidance. Developing this portion of the business will be essential to maintaining the current growth trajectory.

Build-A-Bear enjoys a Buy rating with an upside potential of nearly 22% based on a consensus price target of $52.50 as of December 19, 2024.

Haverty: Recent Struggles, But Room For Growth in 2025

While Build-A-Bear shares have risen throughout most of 2024, those of furniture and mattress maker Haverty Furniture have fallen. As of December 19, the firm has a 1-year total return of -37%. These declines are likely attributable to the company's poor performance in recent earnings reports, in which it has posted falling revenues, profit, comparable store sales, and gross margin, among other things.

Still, 2025 may bring a trend reversal for this 139-year-old company. Most notably, Haverty announced in November that Steven Burdette, previously the company's president, will also become CEO as of January. Burdette was part of the leadership team that successfully navigated the company through the COVID-19 pandemic, helping it to achieve nearly 158% net income growth since 2019.

The company also has the opportunity to capitalize on key portions of its business that are thriving. For example, its design business reported an average ticket size increase in the latest quarter and 19% year-over-year growth. The firm has a strong cash position, with over $121 million in hand as of the end of the third quarter and no funded debt. This will allow it to pursue an aggressive expansion plan that includes three additional new stores in the fourth quarter. It also helps to facilitate the firm's dividend yield of 5.78%.

Natural Grocers: Hot Stock May Be Cooling, But Dividend Persists

The health food chain Natural Grocers has more than doubled in share value since the November election, which is perhaps linked to the news that Robert F. Kennedy Jr. has been nominated as Secretary of Health and Human Services in the new administration. However, the firm's growth is likely also due to strong fourth-quarter earnings, including 37% net sales growth and 53% net income gains year-over-year, plus strong comparable store sales growth.

Natural Grocers may have already maximized its growth potential for the time being—shares have generally slumped from late November through December 19—but it remains a strong dividend play. In the last five years, the firm has paid out nearly $5 per share in cumulative dividends, with an annualized three-year dividend growth rate of nearly 13%.

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Analysts' Top 3 Retail Picks Gearing Up for a Strong 2025

Build-A-Bear: Top- and Bottom-Line Growth, But Web Lags

Haverty: Recent Struggles, But Room For Growth in 2025

Natural Grocers: Hot Stock May Be Cooling, But Dividend Persists

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