Forget everything you've heard about the sluggish economy and tough retail climate. The companies I've highlighted below have the fastest growing profits in the industry. Let's take a look at what they're doing right and whether earnings are sustainable.
Work it out
It stands to logic that selling $98 yoga pants during an economic downturn is a bad business plan. However, yoga lifestyle retailer lululemon athletica (NAS: LULU) is proving it can be done. The company has grown revenue at a compound annual rate of 61% for the past eight years, not to mention a 47% average profit growth for the past three years.
Lululemon sets the bar in technical fabrics, and the quality of the product enables it to charge a premium for the merchandise. But the company's success has spurred strong competition from much larger retailers including Limited Brands (NYS: LTD) owned Victoria's Secret. With an equally powerful brand, Victoria's Secret could take a bite out of Lulu's market because its workout gear is slightly less expensive. But for now, Lululemon's loyal customers keep the profits piling up.
Invest in your future
Fashion footwear and accessories brand Steven Madden (NAS: SHOO) has increased profits at a double-digit rate for eight consecutive quarters. Equally as impressive is Madden's debt-free balance sheet. For the fourth quarter ended Dec. 31, sales climbed 74% from the year earlier. Throw in 48% three-year average profit growth, and we have a winner.
The company continues to invest in its future through acquisitions. Most recently, Madden agreed to pay $29 million for Canadian licensee SM Canada. The deal should generate additional revenue for the brand in the year ahead. Strategic buys give me confidence that this stock will outperform the broader market in the year ahead. That's why I'm giving Steven Madden a green thumbs-up in Motley Fool CAPS.
Make up your mind
Beauty product and salon company Ulta Salon, Cosmetics & Fragrance (NAS: ULTA) continues to surprise me. Ulta is the largest beauty retailer in the United States. It offers a wide assortment of more than 20,000 prestige and mass beauty products. Additionally, each of the 449 U.S. Ulta stores features a full-service salon -- giving visitors another reason to stay in the store longer.
For Ulta's most recent quarter, profit increased 58% on stronger sales and profit margins. Ulta boasts 29% three-year average profit growth, with a 79% average total return. The company hopes to keep up its strong performance through expansion plans. Ulta said it aims to achieve 22% square-footage growth this year by adding 100 stores and remodeling 21 others.
Which of these three stocks do you think will outperform that market this year? Let me know in the comments below. While you're at it, add these stocks to My Watchlist -- The Motley Fool's free tool that lets you track and monitor your favorite companies.
At the time thisarticle was published Fool contributor Tamara Rutter owns shares of Lululemon. Follow her on Twitter, where she uses the handle: @TamaraRutter for more Foolish insights and investing tips. The Motley Fool owns shares of lululemon athletica. Motley Fool newsletter services have recommended buying shares of lululemon athletica, Ulta Salon, and Cosmetics & Fragrance. 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.
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