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5 Must-Buy Stocks on Rebound in U.S. Retail Sales in August

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Americans had their fill of shopping last month. The Commerce Department highlighted that U.S. retail and food services sales in August jumped 0.7% on a sequential basis to $618.7 billion, following a revised reading of 1.8% decline in July. Consumer spending activity, one of the pivotal factors driving the economy, was strong with sales rising across most of the categories during the month.

Given the challenges related to supply chain and the Delta variant, the rise in August retail sales caught most analysts by surprise, who were expecting consumers to rein in spending. Evidently, the back-to-school shopping season and payments under the Child Tax Credit program to qualifying families supported the metric.

Retail sales advanced despite continued sluggishness in sales at motor vehicle and parts dealers, thanks to global chip shortage that has severely hit the auto industry. We note that excluding motor vehicle and parts dealers, retail sales advanced 1.8% sequentially.

August Retail Sales Tick Up

The Commerce Department’s report suggests that sales at furniture & home furnishing stores jumped 3.7%, while the same at building material & supplies dealers rose 0.9% on a sequential basis. Sales at miscellaneous store retailers and general merchandise stores grew 1.4% and 3.5%, respectively.

Sales at health & personal care stores and clothing & clothing accessories outlets increased 0.2% and 0.1%, respectively. While sales at food & beverage stores climbed 1.8%, sales at food services & drinking places remained flat. Meanwhile, receipts at gasoline stations were up 0.2%. Impressively, non-store retailers witnessed a rise of 5.3% in sales.

However, sales at motor vehicle & parts dealers declined 3.6%, while the same at electronics & appliance stores fell 3.1%. Again, at sporting goods, hobby, book & music stores, the metric decreased 2.7%.

Indicator of Strong Holiday Sales

Surge in retail sales is a positive indicator ahead of the holiday season, especially when the industry is currently grappling with supply chain woes, rising freight charges and labor shortages. Retailers need to address any logistical or inventory issues and roll out strategies to provide a seamless shopping experience, whether offline or online.

To beat the COVID-19 blues, retailers are emphasizing on membership programs, upgradation of store technology and omni-channel capabilities, shopping via mobile app, and last mile delivery solutions. Undeniably, expedited delivery services like doorstep delivery, curbside pickup or buy online and pick up at store, and contactless payment gateway will continue to play a crucial role in maximizing share of customers’ wallet.

Per Mastercard SpendingPulse, U.S. retail sales, excluding automotive and gas, are anticipated to increase 7.4% from a year earlier during the traditional holiday period that runs from Nov 1-Dec 24. With e-commerce still being one of the preferred modes for shopping, Mastercard SpendingPulse foresees online sales to rise by 7.6%.

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 a 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 Year-to-Date

 

Zacks Investment Research
Image Source: Zacks Investment Research

5 Prominent Picks

Investors can count on Foot Locker, Inc. (FL - Free Report) , a retailer of athletic footwear and apparel. 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 is on track with converting Footaction stores to other existing banner concepts. It has been bolstering omni-channel capabilities by adding new functionalities. The company is progressing well with the expansion of FLX membership program. At the end of the second quarter, FLX program members exceeded 25 million, globally. Impressively, the company has a trailing four-quarter earnings surprise of 73.1%, on average. The stock has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 17.7% and 146.6%, respectively, from the year-ago period.

Macy's, Inc. (M - Free Report) , one of the nation’s premier omni-channel retailers, is worth betting on. In spite of a tough retail landscape, the company has managed to stay afloat, courtesy of its Polaris Strategy. The strategy includes rationalizing store base, revamping assortments and managing costs prudently. Markedly, customers have been responding well to the company’s expanded omni-channel offerings such as curbside, store pickup and same-day delivery. In this respect, its tie-up with DoorDash for expediting delivery service is encouraging. Macy's also collaborated with Sweden-based buy-now, pay-later group — Klarna — for offering online shoppers financial ease and payment flexibility. The company is constantly improving its mobile and website features to deliver enhanced shopping experience. Notably, this New York-based company has a trailing four-quarter earnings surprise of 269.8%, on average. The stock has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 37.3% and 269.7%, respectively, from the year-ago period.

Tapestry, Inc. (TPR - Free Report) is another potential pick. The company has been benefiting from the successful execution of Acceleration Program. The program is aimed at transforming the company into a leaner and more responsive organization. It intends to build significant data and analytics capabilities with focus on enhancing digital and omni-channel capabilities, and operating with a clearly defined path and strategy for each of its brands namely Coach, Kate Spade and Stuart Weitzman. The stock has a Zacks Rank #1 and a VGM Score of B. This provider of luxury accessories and branded lifestyle products has a trailing four-quarter earnings surprise of 65.2%, on average. The Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 11.6% and 12.5%, respectively, from the year-ago period.

You may invest in Costco Wholesale Corporation (COST - Free Report) . The company’s growth strategies, better price management, decent membership trends and increasing penetration of the e-commerce business have been contributing to its upbeat performance. Cumulatively, these factors have been aiding the Issaquah, WA-based company in registering impressive sales numbers. Costco’s net sales increased 16.2% to $15.75 billion for the retail month of August — the four-week period ended Aug 29, 2021 — from $13.56 billion in the last year. This followed an improvement of 16.6%, 16.9% and 24.2% in July, June and May, respectively. Remarkably, the company has a trailing four-quarter earnings surprise of 7.7%, on average. The stock has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 17.6% and 20.5%, respectively, from the year-ago period.

We also suggest betting on Capri Holdings Limited (CPRI - Free Report) . The company has been reinforcing its position in the luxury fashion space, and looks to maximize the potentials of Versace, Jimmy Choo and Michael Kors brands through expanded products and categories. While exploring growth opportunities in apparel is crucial to the company, it is emphasizing on boosting its accessories business including leather goods and handbags. The company has been constantly deploying resources to expand product offerings, upgrade distribution infrastructure, create seamless omni-channel capabilities and deepen engagement with customers. The stock has a Zacks Rank #2 and a VGM Score of A. The company’s bottom line has outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. The Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 30.8% and 138.4%, respectively, from the year-ago period.