Back to top

Image: Bigstock

5 Retail Stocks That Look Promising Despite Soft May Sales

Read MoreHide Full Article

With large number of Americans being inoculated and resuming active social lifestyle, demand for travel, leisure and entertainment as well as dining out has risen. Industry experts pointed out that as the economy reopens consumers cut back spending on big-ticket items and goods and spent more on services and activities that were previously restricted.

The Commerce Department stated that U.S. retail and food services sales in May fell 1.3% to $620.2 billion, following a revised reading of 0.9% jump in April. The decline was steeper than expected with spending on categories such as automobiles, home furnishing, electronic stores and building supplies taking a hit. However, demand for apparel as well as health and beauty products remained strong.

May Retail Sales Spiral Downward

The report suggests that sales at motor vehicle & parts dealers declined 3.7%, while at electronics & appliance stores the metric fell 3.4%, on a month-over-month basis. Again, sales at furniture & home furnishing stores slid 2.1%, while at sporting goods, hobby, book & music stores it declined 0.8%. Meanwhile, sales at miscellaneous store retailers and general merchandise stores tumbled 5% and 3.3%, respectively. Non-store retailers witnessed a decline of 0.8% in sales.

We note that sales at health & personal care stores and clothing & clothing accessories stores increased 1.8% and 3%, respectively. Sales at food & beverage stores rose 1%, while sales at food services & drinking places jumped 1.8%. Meanwhile, receipts at gasoline stations rose 0.7%.

Underlying Trend Still Looks Strong

In spite of month-on-month decline in U.S. retail sales, market pundits believe that the trend still remains strong. A gradual pick-up in economic activities with more people returning to their workplace along with record savings, higher vaccination rates and waning Covid-19 cases are boosting consumer sentiment. We note that retail sales surged 28.1% from May last year.

Markedly, the National Retail Federation (NRF) envisions U.S. retail sales to increase between 10.5% and 13.5% to an estimated $4.44 trillion to $4.56 trillion in the current year. Further, the NRF raised its 2021 GDP growth forecast to about 7%, from its prior expectation of 4.4% to 5%.

Retailers, particularly apparel, are expecting to make the most of the recovery in demand, in an effort to make up for the sales lost last year due to the pandemic. Additionally, department stores, discount stores and online retailers are likely to capitalize on the upbeat shopping spirit of consumers.

That said, we have highlighted five stocks from the Retail – Wholesale sector that look well positioned based on their sound fundamentals and earnings growth prospects. These stocks have either Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price Performance Past Six Months

 

Zacks Investment ResearchImage Source: Zacks Investment Research

5 Prominent Picks

You may invest in Sally Beauty Holdings, Inc. (SBH - Free Report) . Growing online business and strength in Transformation Plan have been contributing to the overall performance. Also, its efforts to enhance customers’ experience coupled with prudent acquisitions are encouraging. The company has been undertaking a number of efforts to augment its online business amid the ongoing pandemic. In fact, robust investments to enhance the digital space have been yielding results. The stock has a Zacks Rank #1 and a VGM Score of B. This specialty retailer and distributor of professional beauty supplies has a trailing four-quarter earnings surprise of 37.8%, on average. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 7.4% and 86.9%, respectively, from the year-ago period.

We suggest betting on The Buckle, Inc. (BKE - Free Report) , which operates as a retailer of casual apparel, footwear, and accessories for young men and women in the United States. The company has been expanding its assortment offerings to meet consumers’ altering preferences.  We note that its women’s and men’s merchandise categories have been doing well. Also, it has been benefiting from robust accessory and footwear sales. Markedly, the company’s online business has continued to grow amid the crisis. It has been undertaking measures like boosting assortment availability as well as improving search and navigation to boost online sales. Impressively, the stock has a Zacks Rank #1 and a VGM Score of B. The company’s bottom line outpaced the Zacks Consensus Estimate by a wide margin in the last reported quarter. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 22.9% and 41%, respectively, from the year-ago period.

Investors can count on Foot Locker, Inc. (FL - Free Report) , retailer of athletic footwear and apparel. Notably, the company has been witnessing strong demand for athleisure and fitness products. It plans to continue investing in boosting store fleet, including revamping and remodeling of the same. Markedly, it will be converting nearly one-third of its Footaction stores to other existing banner concepts. Such initiatives will help the company focus on its iconic banners. Further, it has been actively investing toward reinforcing digital presence. Impressively, the company has a trailing four-quarter earnings surprise of 47.6%, on average. The stock has a Zacks Rank #1 and a VGM Score of B. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 11.2% and 101.4%, respectively, from the year-ago period.

The Home Depot, Inc. (HD - Free Report) is another potential pick. Continued boom in renovations and construction activities bode well for the company. It is also gaining from strong growth in its Pro (professional) and DIY (Do-It-Yourself) customer categories, and continued digital momentum. Impressively, this home improvement retailer has a trailing four-quarter earnings surprise of 9.9%, on average. The stock has a Zacks Rank #2 and a VGM Score of B. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 8.4% and 15.5%, respectively, from the year-ago period.

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , which owns and operates entertainment and dining venues for adults and families, is also worth betting on. The company’s unique business model, sales-boosting initiatives and continual expansion bode well. It is also benefiting from robust digitization effort and store reopening. The stock with a Zacks Rank #2 and a VGM Score of B has a trailing four-quarter earnings surprise of 184.2%, on average. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 194.4% and 132.3%, respectively, from the year-ago period.

Infrastructure Stock Boom to Sweep America

A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.

The only question is “Will you get into the right stocks early when their growth potential is greatest?”

Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.

Download FREE: How to Profit from Trillions on Spending for Infrastructure >>