Americans splurged in July despite weakness in global growth, thanks to healthy labor market conditions. And with President Trump postponing tariffs on Chinese products to buttress the holiday shopping season, retailers are positioned to gain even more. Thus, it’s time to invest in retailers.
Encouraging Retail Sale Scenario
Retail sales that measure outlays at stores, online-shopping websites and restaurants increased at a seasonally adjusted rate of 0.7% in July from June, easily topping projections, according to the Commerce Department. Retail sales reading, in fact, was the strongest since March, and is definitely a promising sign for the U.S. economy, at least for now, amid a global slowdown.
The so-called core retail sales that exclude food services, auto dealers, building materials stores and gasoline stations rose an even stronger 0.9%. The core retail sales figure is seen as a more reliable gauge of underlying consumer demand.
No doubt, promising July retail sales numbers indicate that consumer outlays have improved in recent times after a sharp drop at the beginning of the year.
What’s more, sales rose 2.8% at Internet retailers mostly due to significant spending during the Amazon Prime Day period. By the way, a spike in oil prices helped sales at gas stations increase 1.8%. Sales too rose at department stores, restaurants, and electronics, books and sporting goods outlets.
What’s Driving Retail Sales?
A healthy labor market and low unemployment rate are cited to be the reasons behind the uptick in retail sales. The United States added a heartening 164,000 jobs in July, almost in line with analysts’ expectations, per the Labor Department. Such solid job additions calmed nerves about the health of the economy, which has now entered its 11th year of expansion. It’s worth pointing out that U.S. jobs growth had been healthy in the first half of 2019.
Meanwhile, the jobless rate remained near a 50-year low of 3.7% last month. The real unemployment rate, including those who are underemployed and discouraged, also known as the U6 rate, slipped to 7% from 7.2% a year ago.
At the same time, another broader gauge of unemployment that shows people who can’t find a full-time job dropped just below 4 million for the first time since 2006. By the way, Fed Chair Jerome Powell said recently that “people who live and work in low- and middle-income communities tell us that in who have struggled to find work are now getting opportunities to add new and better chapters to their lives.”
Retailers Cheer Trump’s Tariff Delay
In fact, retail sales are expected to improve further in the near future as President Trump delayed tariffs on the remaining Chinese imports in hopes of boosting U.S. holiday sales. Such tariffs would have resulted in job cuts and store closures for retailers. Tariffs would dampen consumer outlays, slow down the economy and hurt retailers’ bottom line.
Lest we forget, retailers have already trimmed 43,000 jobs so far this year, showing a 40% jump from the same period last year, according to the outplacement firm Challenger Gray & Christmas. What’s more, store closures so far this year have exceeded last year’s count, per a recent report from Coresight Research.
The Big Winners
Given the positives, retailers are set to witness a strong rally. To top it, American consumers are still confident about their well-being, and that’s a bonanza for retailers as well. The consumer confidence index climbed to 135.7 in July from a revised 124.3 in June, according to the Conference Board. The key economic indicator, which measures attitudes on economic prospects, exceeded analysts’ expectations of a 126 reading and now sits slightly below an 18-year high of 137.9, achieved last October.
Hence, it will be prudent to invest in five of the best retail stocks. Such stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Boot Barn Holdings, Inc. BOOT, a lifestyle retail chain, operates specialty retail stores in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 7.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 20.7%, higher than the Retail - Apparel and Shoes industry’s estimated rally of 0.5%.
Fossil Group, Inc. FOSL designs, develops, markets and distributes consumer fashion accessories. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 71.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 91%, compared with the Retail - Apparel and Shoes industry’s expected rise of 0.5%.
RH RH operates as a retailer in the home furnishings. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 5.4% up over the past 60 days. The company’s expected earnings growth rate for the current year is 10.7%, compared with the Retail - Home Furnishings industry’s projected rally of 0.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy Co., Inc. BBY operates as a retailer of technology products, services, and solutions in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 0.3% north over the past 60 days. The company’s expected earnings growth rate for the current year is 8.1%, compared with the Retail - Consumer Electronics industry’s estimated rally of 3.3%.
Aaron's, Inc. AAN operates as an omnichannel provider of lease-purchase solutions to underserved and credit-challenged customers. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 3.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 17.3%, compared with the Retail - Consumer Electronics industry’s estimated rally of 3.3%.
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