US Retail Sales Expectations for 2018 Up By a Notch: 5 Picks

This year, sales at U.S. retailers are positioned to outdo expectations on higher income, tight labor market and tax reform package from President Trump’s administration. This surely puts the spotlight on retailers that are poised to make the most of the anticipated sales uptick.

NRF Lifts 2018 U.S. Retail Sales Forecast

On Aug 13, the National Retail Federation (NRF) said that it expects retail sales to climb higher than what had been earlier projected. Spending at retailers for this year — excluding automobiles, gasoline stations and restaurants — is predicted to grow 4.5% year over year. The trade organization had projected a modest growth range of 3.8% to 4.4% in February.

NRF asserted that for the first half of this year, retail sales improved 4.8% over the same period last year in spite of a poor show in January. In the most recent three-month moving average, retail sales ticked up 4.4% year over year.

The retail sectors’ rebound has been apparent on Wall Street as well, with Macy's, Inc. M stock rising 52.3% this year. Meanwhile, Nordstrom, Inc. JWN is trading near its 52-week high of $54.61 and several retail ETFs are hitting record highs.

Matthew Shay, NRF president and CEO, said that “higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation’s consumer-driven economy.” He added that “tax reform and economic stimulus have created jobs and put more money in consumers’ pockets, and retailers are seeing it in their bottom line. We knew this would be a good year, but the first half turned out to be even better than expected.”

Having said that, he did emphasize that looming tariff threats might be a concern for retailers. Tariffs of 25% on $34 billion worth of Chinese goods had already taken effect last month, with tariffs on another $16 billion slated to take effect this month. Then again, both the lists include comparatively lesser number of consumer products.

Factors That Will Boost Spending

Disposable personal income increased $167.5 billion, or 4.5% in the second quarter, which followed a gain of $256.7 billion or 7% in the first quarter. The recent jobs report also painted a pretty picture of an economy with opportunities for almost everyone.

The U.S. economy added 157,000 new jobs in July and has risen for 94 successive months, the longest streak on record. The economy, at the same time, created 59,000 more jobs in May and June than earlier reported. Thus, the average gains for the three-month period came in a solid 224,000.

The jobless rate, in the meantime, dropped to 3.9%. This is the eighth time that the unemployment rate has fallen below the 4% mark since 1970. The current unemployment rate is now at a nearly two-decade low. The real unemployment rate, also known as U6, contracted to 7.5% from 7.6%. The U6 now stands at a level lower than it was during the 2007-2009 recession.

To top it, the cut in taxes increased take-home pay. This in turn gave Americans the means to spend more. The “Tax Cuts and Jobs Act” constricted the individual income tax brackets. While the top rate got trimmed from 39.6% to 37%, the 33% bracket declined to 32%, the 28% bracket to 24%, the 25% bracket to 22%, and the 15% bracket to 12%.

5 Top Winners

Taking the spending spree into account, retailers are set to witness a strong rally. Hence, it will be wise to invest in these five solid retail stocks. These stocks also have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Boot Barn Holdings, Inc. BOOT operates specialty retail stores in the United States. Currently, the company has a Zacks Rank #1. In the last 60 days, six earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 12.7% in the same period. The company’s projected growth rate for the current year is 64.3%, while the Retail - Apparel and Shoes industry is expected to gain 15.4%.

American Eagle Outfitters, Inc. AEO operates as a specialty retailer that provides clothing, accessories, and personal care products under the American Eagle Outfitters and Aerie brands. Currently, the company has a Zacks Rank #2. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.7% in the same period. The company’s projected growth rate for the current year is 31%, while the Retail - Apparel and Shoes industry is expected to gain 15.4%.

Dollar General Corporation DG, a discount retailer, provides various merchandise products in the Southern, Southwestern, Midwestern, and Eastern United States. Currently, the company has a Zacks Rank #2. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.2% in the same period. The company’s projected growth rate for the current year is 75%, while the Retail - Discount Stores industry is expected to gain only 7.1%.You can see the complete list of today’s Zacks #1 Rank stocks here.

The TJX Companies, Inc. TJX operates as an off-price apparel and home fashions retailer. The company currently has a Zacks Rank #2. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.2% in the same period. The company’s projected growth rate for the current year is 20.1%, while the Retail - Discount Stores industry is expected to gain 18.2%.

Kohl's Corporation KSS operates as an omni-channel retailer in the United States. Its stores and Website offer apparel, footwear, accessories, beauty, and home products. Currently, the company has a Zacks Rank #2. In the last 60 days, three earnings estimates moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 0.4% in the same period. The company’s projected growth rate for the current year is 28.9%, while the Retail - Regional Department Stores industry is expected to gain 19.7%.

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