Wall Street is having its best year so far since 1997. However, the same cannot be said about retailers. While the broader S&P 500 has gained a staggering 18% on a year-to-date basis, the SPDR S&P Retail ETF increased a meager 3%. After all, trade related issues between the United States and China took a toll on retail stocks.
But, now the trade war between two of the world’s most powerful economies have been put on hold and a deal seems imminent. This development should reinvigorate U.S. consumers, which in turn should bode well for retailers during the second half of this year.
Talking about U.S. consumers, things are certainly looking up for them for the rest of this year. And why not? Jobs are being added at a steady clip, unemployment rate is at record low levels, wages are ticking up, which is making consumers feel more confident about their well-being.
The United States added a promising 224,000 jobs last month, way higher than analysts’ expectations of 170,000 jobs, per the Labor Department. Unemployment rate, by the way, edged up to 3.7% from 3.6% but is near a 50-year low. The U-6 rate ticked up to 7.2%. However, the rate of underemployment rate is below where it was a few years back. What’s more, the phenomenal jobs report shows that hourly pay has gone up by 6 cents to $27.90 an hour. In the last 12 months, wage gains held steady at 3.1%.
Back-to-school shopping season is also just around the corner. And this time around shoppers are expected to spend more on retail outlets compared with last year. In fact, Amazon Prime Day is expected to kick off the back-to-school shopping season. Further, more than 80% of retailers consider the Amazon Prime Day period to be the most important time of the back-to-school season, per data from RetailMeNot.
It is likely that more than two-thirds of shoppers during Amazon Prime Day period will also head to other retailers. On average, shoppers are expected to visit at least 11 retailers throughout the Prime Day period. Data from marketing intelligence company MiQ showed that shoppers will visit stores on average 16 times to buy back-to-school items between July and September.
Notably, shoppers are expected to spend an average $507 for the entire back-to-school summer period, more than $465 last year. Retail behemoths Target and Walmart are already offering deals and additional discounts to attract customers.
Thus, it will be prudent to invest in retail stocks that can make the most of the big upside potential over the upcoming several months. Let’s have a look at them –
Dollar General Corporation DG is a discount retailer that provides various merchandise products in the southern, southwestern, Midwestern, and eastern United States. The company’s focus on low prices for consumer staples products helped drive strong sales and profit growth over the past several years.
The company, currently, carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings increased 0.6% over the past 60 days. The stocks expected earnings growth rate for the current-year is 8.2%, higher than the Retail - Discount Stores industry’s projected rally of 7.7%.
Target Corporation TGT operates as a general merchandise retailer in the United States. Target’s new initiatives including development of omni-channel capacities, diversification and localization of assortments and emphasis on flexible format stores stand in good stead for the company.
The company, currently, carries a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 1.9% over the past 60 days. The company’s expected earnings growth for the current year is 9.8%, more than the Retail - Discount Stores industry’s projected rally of 7.7%.
Walmart Inc. WMT engages in retail and wholesale operations in various formats. The retail giant is currently gaining from its sturdy comps record, which in turn is driven by its constant omni-channel efforts.
The company, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has advanced 1.5% over the past 60 days. The company, which is part of the Retail - Supermarkets industry, is expected to record earnings growth of 4.8% in the next year.
The Children's Place, Inc. PLCE operates as a children's specialty apparel retailer. It sells apparel, footwear, accessories, and other items for children. Children's Place has taken initiatives like Digital transformation, fleet optimization and international expansion to expand its presence.
The company, currently, sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its current-year earnings has jumped 12.4% over the past 60 days. The company’s expected earnings growth for the next quarter is 11.7%, against the Retail - Apparel and Shoes industry’s projected decline of 47.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Designer Brands Inc. DBI designs, producers, and retails footwear and accessories for women, men, and kids primarily in North America.
The company, currently, carries a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 3.2% over the past 60 days. The company’s expected earnings growth for the current year is 15.7%, against the Retail - Apparel and Shoes industry’s projected decline of 2.2%.
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