The current market scenario for the retail industry is quite encouraging. After facing declining sales, store closures and bankruptcy, the retail space is likely to pick up pace in 2018. The Commerce Department report revealed that while retail sales dropped 0.1% in February, core retail sales inched up 0.1% after remaining flat last month. Core retail sales data exclude sales figures of automobiles, gasoline, building materials and food services.
Per an analyst report by Deloitte, the retail market is projected to grow 3.2% to 3.8% in 2018. The linchpin to the strong near and long-term retail industry outlook is a strong labor market and rising consumer income.
Retail sales in the United States account for roughly 30% of total consumer discretionary spending and therefore the industry is highly reliant on overall economic conditions. According to the Federal Reserve’s most recent forecast, the economy is anticipated to grow at a reasonable rate of 2.7% in 2018. Unemployment rate is also predicted at 3.8% for 2018 from the current rate of 4.1%. Moreover, high real disposable income, low inflation, an uptick in house prices and a strong stock market are making the consumer pockets heavier. Now, it is to be seen how retailers compete to cash in on the increased consumer spending.
Notably, the Retail-Wholesale sectorhas been displaying steady growth. In the past year, the sector has gained 25.5%, while the S&P 500 index advanced 10.6%. Moreover, according to the latest Earnings Trends, the sector is expected to record top and bottom-line growth of 7.3% and 10.7%, respectively, in the first quarter.
Is Retail on the Path of Recovery?
Consumer demand for goods is increasing and shifting among a range of formats and channels. Consumers are looking to shop differently keeping convenience as the topmost priority. Adapting to shifting demand has become a major precedence for retailers.
Numerous stores closures and several bankruptcy filings shaped the retail industry in 2017. Retailers who failed to strategize in a highly competitive space phased out. In fact, if they do not make pragmatic use of advanced technologies to innovate across value chains, store closures and bankruptcies might continue.
Digital innovation, focus on continual product customization and launch and delivering of seamless consumer experience are expected help retailers make the most of the recent recovery in the space. In fact, clothing stores, restaurants and bars that have employed distinguished facilities are already enjoying rising demand.
So, terms like ‘retail apocalypse’ and ‘retail melt-down’ should no longer dampen investors’ spirits as they can consider a few stocks from the evolving space that appear to hold promise this year.
Picking the Right Stocks
We have taken the help of Zacks Stock Screener to zero in on retail stocks that project year-over-year earnings growth of more than 50% in 2018 and flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Further, we believe that these stocks will show substantial improvement in long-term earnings.
Conn's, Inc. CONN sports a Zacks Rank #1. The Zacks Consensus Estimate for the company’s earnings in 2018 is pegged at 88 cents, reflecting 500% growth from 2017. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the next three to five years, the company is expected to deliver earnings growth of 23%. Moreover, in the past year, the company’s shares have gained 276.8%, outperforming the Retail-Wholesale sector’s rally of 25.5%.
RH RH is known for its various initiatives that should drive profitability. The company’s initiatives like RH Modern, RH Teen, RH Hospitality, the redesign of RH Interiors Source Book, the rollout of Design Ateliers across its retail galleries are expected to contribute to growth. Subsequently, the consensus estimate predicts earnings of $2.94 in 2018, suggesting 133.3% year-over-year growth. Also, earnings in the long term are expected to grow 20%.
In the past year, RH’s shares have returned 111.8%, outperforming the retail sector. RH carries a Zacks Rank #2.
Beacon Roofing Supply, Inc. BECN is one of the largest distributors of residential and non-residential roofing materials in the United States and Canada. Although shares of the companyhave underperformed the sector over the past year, earnings estimates have been trending upward over the last 30 days. The company also flaunts a Zacks Rank #1.
The consensus estimate for 2018 earnings is pegged at $3.56 on 63.3% year-over-year growth. Also, over the next three to five years, Beacon Roofing is expected to grow 32.5%.
PetMed Express, Inc. PETS carries a Zacks Rank #2. Over the past year, the company’s shares have returned 104.7%, outperforming the sector.
The consensus estimate for 2018 earnings is pegged at $1.77, mirroring a 51.3% increase from 2017. Also, the company is expected to grow 10% over the next five years.
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