5 Retail Stocks to Steal the Show as Sales Tick Up Again

Americans continued their shopping spree buoyed by strengthening labor market, tax reform and rising incomes. U.S. retail sales rose again in the month of May, clearly indicating that the economy remains well on track after a muted start to the year. These factors along with firming inflation allowed the Federal Reserve to raise the benchmark interest rate for the second time this year.

Consumers are splurging on clothing, flocking department stores and buying motor vehicles, even as they shell out more for gasoline.

Certainly, consumer spending — one of the pivotal factors driving the economy — is likely to remain strong in the months ahead. This is well reflected from an unexpected fall in the number of Americans claiming unemployment benefits and jobless rate hovering at an 18-year low. Evidently, the economic activity continues to gain pace with second-quarter GDP rate likely to come ahead of 4%, per industry experts.

Retail Sales Continue to Pop Up

The Commerce Department stated that U.S. retail and food services sales in May advanced 0.8% to $502 billion, following an upwardly revised reading of 0.4% gain in April. Notably, retail sales improved 5.9% from May 2017.

The report suggests that sales at motor vehicles and parts dealers rose 0.5%, while at food services & drinking places the metric increased 1.3%. Meanwhile, sales at general merchandise stores and building material dealers grew 1.2% and 2.4%, respectively. Receipts at gasoline stations rose 2%, while sales at clothing & clothing accessories stores improved 1.3%.

Sales at non-store retailers inched up 0.1% but surged 9.1% from the prior-year period. At electronics & appliance stores sales climbed 0.2%.

However, sales at sporting goods, hobby, book & music stores dipped 1.1%, while at furniture & home furnishing stores the same fell 2.4%.

Retail Stocks to Sustain Momentum

Pick up in retail sales is welcome news for retailers, whose fortunes depend upon consumers’ willingness to spend. A robust job market with unemployment rate at 3.8%, massive tax cuts and sound economic fundamentals are likely to boost consumer confidence, which rose close to 18-year high in May. We expect this positive sentiment to translate into higher consumer spending.

Certainly, favorable economic indicators along with friendlier fiscal and regulatory policies from the current regime bode well for the sector.

For obvious reasons, retailers are the end gainers. With digital transformation in shopping, retailers are fast adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. Moreover, National Retail Federation’s projection of an uptick in U.S. retail sales of 3.8-4.4% this year raises optimism. Additionally, the recent cut in corporate tax rate will allow retailers to channelize the surplus money toward best possible alternatives.

Notably, the Zacks Retail-Wholesale sector has advanced roughly 13% in the past six months and has comfortably outperformed the S&P 500’s growth of approximately 4%.

Retail Stocks to Take Center Stage

With U.S. retail sales ticking up more than anticipated in the last month, the sector is likely to remain in the limelight. So, picking up stocks from the space will be a prudent move. Here are five stocks you can count upon.

Shoe Carnival, Inc. SCVL, which operates as a family footwear retailer, has a VGM Score of B and an expected EPS growth rate of 12% for 3-5 years. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Urban Outfitters, Inc. URBN, a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home decor and gifts products, carries a Zacks Rank #1. The stock has a VGM Score of A and an expected EPS growth rate of 12% for 3-5 years.

Lithia Motors, Inc. LAD, which operates automotive franchises, and retails new and used vehicles, has a VGM Score of A and an expected EPS growth rate of 16.9% for 3-5 years. The stock currently carries a Zacks Rank #2 (Buy).

Domino's Pizza, Inc. DPZ, which operates as a pizza delivery company, has a VGM Score of B. This Zacks Rank #2 stock has an expected EPS growth rate of 19.1% for 3-5 years.

Dillard's, Inc. DDS, which operates retail department stores, has a VGM Score of A and an expected EPS growth rate of 9.9% for 3-5 years. The stock currently carries a Zacks Rank #2.

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Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
 
Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
 
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Domino's Pizza Inc (DPZ) : Free Stock Analysis Report
 
Dillard's, Inc. (DDS) : Free Stock Analysis Report
 
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