Sales at U.S. retailers picked up in May and sales for the previous month were revised higher as American shoppers ramped up spending on wage gains and a record-low unemployment rate. Such an uptick in consumer spending eased concerns about the economy slowing down in the second quarter. Thus, it’s time to invest in retailers that are likely to make the most of the bullish sentiments.
Encouraging Retail Sale Scenario
Retail sales that measure outlays at stores, online-shopping websites and restaurants increased at a seasonally adjusted rate of 0.5% in May from April, and easily topped projections, according to the Commerce Department. April sales were, in fact, revised to show a 0.3% advance instead of a 0.2% drop, as reported previously. And when compared to last May, retail sales jumped 3.2%.
The so-called core retail sales that exclude food services, auto dealers, building materials stores and gasoline stations rose 0.5% in May, following an upwardly revised 0.4% increase in April. The core retail sales figure is seen as a more reliable gauge of underlying consumer demand.
No doubt, promising April and May retail sales numbers indicate that consumer outlays have picked up in the second quarter after a sharp drop in the first quarter. Such strong retail sales numbers raise the possibility of economists lifting their second-quarter GDP estimates, which is currently below a 2% annualized rate.
The Big Winners
Retail sales were mostly broad-based. Notably, 11 of the 13 major retail categories saw a rise in sales, led by a 1.4% gain in online and mail order purchases, the highest since January. Such online shopping destinations were predominantly led by Amazon.com Inc AMZN.
Receipts at electronic and appliance stores, sporting goods, hobby, musical instrument and book stores also recorded a 1.1% increase. By the way, sales at bars and restaurants edged up 0.7% last month, while building materials and garden equipments saw sales rose 0.1%.
Last month, sales at automobile and parts dealers which account for almost one-fifth of all retail sales improved 0.7% after falling 0.5% in the previous month. Receipts at service stations also rose 0.3%. However, sales at clothing stores remained unchanged, and the only sector that witnessed a decline in sales was food and beverage, down 0.1%.
What Drove Spending?
Consumer outlays are off to a firm start this quarter. The pickup in consumer spending is mostly due to steady wages gains and unemployment rate remaining at the lowest level in half a century. The average wage paid to American workers went up 6 cents to $27.83 an hour in May. Wage growth over the past 12 months came in at 3.1%.
The unemployment rate, in the other meanwhile, was near a 49-year low of 3.6%. The broader measure of joblessness that includes part-time workers as well, better known as U6 rate, slipped to its lowest level in 19 years.
5 Top Gainers
Taking the spending spree into account, retailers are set to witness a strong rally. Hence, it will be prudent to invest in five of the best retail stocks from the categories that have witnessed a significant rise in receipts. Such stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Chipotle Mexican Grill, Inc. CMG operates Chipotle Mexican Grill restaurants. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 3.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 43.5%, higher than the Retail - Restaurants industry’s estimated rally of 6.2%. The company has outperformed the broader industry so far this year (+71.5% vs +21.5%).
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 moved up 0.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 13.7%, higher than the Retail - Consumer Electronics industry’s protected rise of 2.1%. The company has outperformed the broader industry on a year-to-date basis (+44.1% vs +19.1%).
Shoe Carnival, Inc. SCVL operates as a family footwear retailer in the United States. The company offers various dress, casual, and athletic footwear products for men, women, and children. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 3.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 13.1% compared with the Retail - Apparel and Shoes industry’s anticipated decline of 1.7%. The company has outperformed the broader industry over the past two-year period (+34.6% vs -22.2%). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lithia Motors, Inc. LAD operates as an automotive retailer in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 8.6% north over the past 60 days. The company’s expected earnings growth rate for the current year is 11.7%, higher than the Automotive - Retail and Whole Sales industry’s protected rally of 10.7%. The company has outperformed the broader industry so far this year (+52.4% vs +22.1%).
BMC Stock Holdings, Inc. BMCH distributes lumber and building materials to new construction, and repair and remodelling contractors in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 11.5% over the past 60 days. The company’s expected earnings growth rate for the next year is 7.9%. The company has outperformed the broader Building Products - Retail industry on a year-to-date basis (+33.7% vs +15.6%).
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