Small-cap ASX stocks can be some of the most exciting opportunities to consider because of the potential for them to grow significantly in size.

It's usually a lot easier for a smaller business to double in size from $1 billion to $2 billion than it is for a larger business to double in size from $10 billion to $20 billion.

In this article, I'm going to talk about Universal Store Holdings Ltd (ASX: UNI), an ASX retail share that owns a number of premium youth fashion brands. It trades through Universal Store, Perfect Stranger, and CTC (THRILLS and Worship brands). The business has well over 100 physical retail stores.

It aims to provide a carefully curated selection of on-trend apparel products to a target 16 to 35-year-old fashion-focused customer.

It's not common to call a share a bargain after it has risen by over 50%, but I think it's cheap considering its potential for growth.

Store growth

One of the main ways the company can deliver growth is by expanding its store network, allowing it to reach more customers and improve its scale benefits.

For FY25, it had given market guidance of between nine to fifteen new stores. It opened seven new stores in the first half of FY25 and had confirmed five new stores in the second half of FY25 as of February 2025.

The company noted it's pursuing additional new store opportunities, while being prudent to ensure those new stores support long-term profitability.

Strong same-store sales

When a business is rapidly expanding its geographic presence, we don't want to see that the new stores are cannibalising sales from existing stores.

The ASX small-cap stock is delivering a very pleasing level of like-for-like (LFL) sales growth.

When it reported its FY25 first-half result, it also gave a trading update for the period from 30 December 2024 to 16 February 2025 for direct to customer sales. Universal Store LFL sales were up 22.5%, Perfect Stranger LFL sales increased 38.8%, and CTC LFL sales were up 37.8%.

I'm not expecting the business to continue that level of growth over the rest of the 2025 calendar year, but it demonstrates the business is on a good trajectory.

Rising profit margins

One of the main things I like to see with a growing business is that its increasing scale is helping improve its profit margins. In other words, I want to see operating leverage coming through, allowing profit to rise faster than revenue.

In the FY25 half-year result, the ASX small-cap stock reported that total sales increased by 16.1% and underlying net profit after tax (NPAT) grew 16%. But, the last four years has seen the company deliver a significant improvement in margins. The longer term is more important than one half-year result.

The HY25 result didn't see stronger margins because the company invested in its team capability to support its future growth aspirations, including new roles relating to strategic projects as well as filling FY24 vacancies.

I'm expecting good improvements in profit margins in the coming years.

Good dividend

One of the main ways that an Australian company can reward shareholders is by paying dividends.

The ASX small-cap stock's annual dividend has increased every year since it started paying one in 2021.

Its last two paid dividends come to a grossed-up dividend yield of 7.5%, including franking credits, which is a big yield.

I think there's plenty of potential for the dividend to grow significantly in the coming years.