By Ian Salisbury

When it comes to the notoriously competitive retail sector, every dollar counts. That's why investors may want to take a look at stocks like Deckers Outdoor, O'Reilly Automotive, and Lululemon Athletica.

Those three stocks boast the sector's highest return on invested capital, according to a note from Citi Research on Friday. The note also applauded Ross Stores and TJX Companies among discount retailers.

Return on invested capital, or ROIC, is a measure of how much operating profit a company can wring out of every dollar it invests in its business -- whether equity from shareholders or debt from lenders. It's particularly important in evaluating the retail sector, which is known for stiff competition, low margins, and big upfront investment in inventory, storefronts, and more.

Citi Research said the median ROIC across the universe of retail stocks it follows -- based on its proprietary measure -- was 17.6%. The industry's top score belongs to Deckers. The footwear company, whose brands include UGG, Hoka, and Teva, posted a 53% ROIC last year. Auto parts retailer O'Reilly Automotive and athleisure brand Lululemon weren't far behind at 45%, according to Citi.

The analyst team led by Paul Lejuez, calls the trio of stocks "the most HeRoic in 2024."

In line with its emphasis on ROIC, Citi has Buy recommendations on both Deckers and O'Reilly Automotive, although its rating on Lululemon is Neutral.

Shares of both Lululemon and Deckers have lagged far behind the broader market in 2025 -- they are both down around 50% year to date -- thanks to tariffs and fast-changing consumer tastes. The S&P 500, in comparison, has risen around 14%.

Citi isn't the only firm on Wall Street that says Deckers can bounce back. While analysts expect profits to be more or less flat for the year ended March 2026, they forecast growth of around 10% the following fiscal year. The average sell-side analyst price target implies upside of about 25% on the shares.

"Hoka is one of the fastest-growing brands in the athletic space," Lejuez wrote after the company's most recent earnings report in July. "While the market fears a slowdown in Hoka growth in fiscal year 2026, we believe fears are overblown."

In contrast to the two apparel brands, O'Reilly Automotive is having a banner year, with shares up more than 32%. Americans have been putting off new car purchases, and the go-to repair option O'Reilly has been the beneficiary.

The stock has recently gotten expensive, reading at nearly 33 times forward earnings, its highest level in at least a decade. But as Barron's has previously argued , that premium seems justified, given its famously efficient supply chain.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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October 04, 2025 03:00 ET (07:00 GMT)

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