As summer vacation is coming to a close, it’s time for students to head back to schools and colleges. This time around, back-to-school and back-to-college spending is expected to reach a record-high level as more students are expected to join institutions, and most notably, consumers are regaining confidence. The increased confidence can be attributed to an improving economy and healthy labor market.
As spending levels are poised to scale record highs, retailers have been witnessing an uptick in sales. Given such bullish trends, investing in sound retail stocks seems prudent.
Back-to-School Season: A Big Event on the Horizon
According to the National Retail Federation’s (NRF) annual survey, families with children in elementary school are expected to spend an average $696.70, up from $684.79 last year and the record of $688.62 achieved in 2012. When it comes to children in grades K-12, spending is projected to hit $26.2 billion.
Parents are expected to spend an average of $203.44, $136.96 and $117.49 on electronics such as computers, calculators and phones, shoes and school supplies such as notebooks, pencils, backpacks and lunch boxes, respectively. In fact, it is clothing and accessories supplies that are expected to see the highest increase, with expenses coming at an average $239.82.
Majority of the shopping is expected to take place at department stores (53%), discount stores (50%), online (49%), clothing stores (45%) and office supply stores (31%). In fact, NRF President and CEO Matthew Shay said that “over the years, both teens and pre-teens are spending more of their own money on back-to-school items.”
By the way, deciding to send your child to college is one of the most expensive decisions a family makes, and back-to-college costs — think dorm room necessities and textbooks, for instance — add up. And college shoppers are most likely to spend the maximum on electronics ($234.69) followed by clothing and accessories ($148.54), dorm and apartment furnishings ($120.19) and food items ($98.72). Shay added that “college shoppers are really showing their school spirit when it comes to buying collegiate gear this year, with outlays on college-branded items is expected to average $62.22, up 17 percent from last year.”
Retailers to Make Merry
Back-to-school spending is poised to hit an all-time high, brightening the prospect for retailers. By the way, sales at U.S. retailers that measure outlays at stores, online-shopping websites and restaurants increased at a seasonally adjusted rate of 0.4% in June from a month earlier, pointing to a strong rebound in consumer spending in the second quarter, per the Commerce Department. It also shows that the economy is not as fragile as the Fed seems to believe. And when compared to last June, retail sales jumped 3.4%. Meanwhile, sales at retailers rose at a healthy clip of 0.4%, both in April and May.
Core retail sales that exclude sales from food services, auto dealers, building materials stores and gasoline stations rose 0.7% in June, following an upwardly revised 0.6% increase in May. The core retail sales figure is seen as a more reliable gauge of underlying consumer demand.
The uptick in retail sales was buoyed by higher income levels and consumer confidence. More than these, strong hiring and low layoffs are boosting spending levels. The United States added 224,000 jobs last month, way higher than analysts’ expectations of 170,000 jobs.
Unemployment rate, by the way, edged up to 3.7% from 3.6% but is still 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 (read more: U.S. Jobs Growth Roars Back: Winners & Losers).
5 Solid Choices
We have, thus, selected five fundamentally sound retailers that can make the most of the back-to-school shopping season. The stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
The Buckle, Inc. BKE operates as a retailer of casual apparel, footwear, and accessories for young men and women in the United States. The company currently has a Zacks Rank 1. The Zacks Consensus Estimate for its current-year earnings has increased 2.3% over the past 60 days. The company’s expected earnings growth for the current quarter is 6.3% against the Retail - Apparel and Shoes industry’s projected decline of 53.7%.
Zumiez Inc. ZUMZ operates as a specialty retailer of apparel, footwear, accessories, and hard goods for young men and women. The company currently has a Zacks Rank 1. The Zacks Consensus Estimate for its current-year earnings has moved up 2.2% over the past 60 days. The company’s expected earnings growth for the current quarter is 11.8%, compared with the Retail - Apparel and Shoes industry’s projected decline of 53.7%.
Best Buy Co., Inc. BBY operates as a retailer of technology products, services, and solutions. The company currently has a Zacks Rank 1. The Zacks Consensus Estimate for its current-year earnings has increased 0.3% over the past 60 days. The company’s expected earnings growth for the current year is 8.1%, higher than the Retail - Consumer Electronics industry’s projected gain of 2.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Walmart Inc. WMT engages in retail and wholesale operations in various formats. The company currently has a Zacks Rank 2. The Zacks Consensus Estimate for its current-year earnings has climbed 0.6% over the past 60 days. The company, which is part of the Retail - Supermarkets industry, is expected to record earnings growth of 4.6% in the next year.
Target Corporation TGT operates as a general merchandise retailer in the United States. The company currently has a Zacks Rank 2. The Zacks Consensus Estimate for its current-year earnings has risen 0.2% 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 8%.
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