The retail sector has been one of the biggest casualties of soaring commodity prices. Multi-decade high inflation has seen people spending cautiously, and sales slowing over the past year. However, things seem to be normalizing, as retail sales have finally started showing signs of rebounding.
Higher consumer spending coupled with elevated demand has been boosting sales, as inflation is finally easing. Given this situation, stocks likeThe TJX Companies, Inc. TJX, Five Below, Inc. FIVE, Casey's General Stores, Inc.CASY and Conagra Brands, Inc. CAG are likely to benefit in the near term.
Retail Sales Bounce Back in April
The Commerce Department reported on May 16 that retail sales rose 0.4% in April, following a 0.7% decline in March. Although the rise in April missed the consensus estimate of 0.7%, the sector has finally started showing signs of recovery after sales remained sluggish in the first quarter of the year.
Core retail sales, which do not include gasoline and automobiles, increased 0.6% in April. Moreover, sales rose in seven out of the 13 retail categories last month. These included significant gains at retailers of general merchandise, online stores, and auto dealers.
The jump was primarily driven by steady consumer spending both in stores and online as well as at restaurants. Steady consumer spending continued in April despite fears of the economy slipping into a recession this year. Higher interest rates have been a concern, but consumers are spending aggressively.
This is primarily because of a resilient labor market. The U.S. economy has been adding a significant number of jobs. Nonfarm payrolls rose 253,000 in April, surpassing expectations of a rise of 180,000. This has led to a rise in wages, which is boosting the purchasing power. Signs of easing inflation also payed its part in loosening purse strings. Consumers almost overlooked the inflation level, which is still way higher than the Fed’s target rate of 2%.
The Consumer Price Index (CPI) reading for April showed that prices rose 4.9% year over year compared to 5% recorded in March. This is the lowest annual rate in two years.
Besides, CPI rose 0.4% month over month in April compared to an increase of 0.1% in the previous month.
Also, market participants expect the Fed to finally pause hiking interest rates, which could start as early as June, following the impressive inflation data. This is likely to help the sector regain its lost territory.
Stocks to Watch
Given this situation, it would be prudent to track the following retail stocks.
The TJX Companies, Inc. is a leading off-price retailer of apparel and home fashions in the United States and worldwide. TJX’s broad range of assortments at varying prices helps it to reach out to a broad range of consumers. In addition, The TJX Companies tries to attract consumers through a rapid turn of inventories.
The TJX Companies’ expected earnings growth rate for the current year is 13.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the past 60 days. TJX has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Five Below, Inc. is a specialty value chain retailer that provides a wide range of premium quality and trendy merchandise for $5 or below. FIVE mainly targets teenagers or pre-teen shoppers for its products, which include certain brands and licensed merchandise. Notably, these products belong to categories such as Style, Room, Sports, Tech, Create, Party, Candy and Now.
Five Below’s expected earnings growth rate for next year is 19.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the past 60 days. FIVE presently carries a Zacks Rank #2.
Casey's General Stores, Inc. operates convenience stores under the Casey's and Casey's General Store names in 16 Midwestern states, mainly Iowa, Missouri and Illinois. CASY also operates two stores under the name "Tobacco City," selling primarily tobacco and nicotine products, one liquor store and one grocery store.
Casey's General Stores’ expected earnings growth rate for the current year is 28.1%. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past 60 days. CASY currently carries a Zacks Rank #3 (Hold).
Conagra Brands, Inc. CAG is one of the leading branded food companies of North America. CAG offers premium edible products, with a refined focus on innovation. Conagra Brands maintains a highly dynamic product portfolio and incorporates alterations within it as per the preference pattern of its end users.
Conagra Brands’ expected earnings growth rate for the current year is 16.5%. The Zacks Consensus Estimate for its current-year earnings has improved 3.4% over the past 60 days. CAG has a dividend yield of 3.59%. Conagra Brands has a Zacks Rank #2.
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