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4 Retail Stocks Worth Buying Despite Dismal Sales in May

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Consumer spending activity, which is one of the pivotal factors driving the economy, has somewhat slowed down. This was clearly visible from retail sales data for the month of May, which marked the first month-over-month decline in spending for the current year. The Commerce Department stated that U.S. retail and food services sales in May fell 0.3% sequentially to $672.9 billion, following a downwardly revised reading of a 0.7% increase registered in April.

Industry experts see more pain ahead as Americans grapple with soaring commodity and record gasoline prices as well as rising interest rates. This also raises concerns about the health of the U.S. economy. We note that the consumer price index rose 1% month on month in May, following an increase of 0.3% in April. On a year-over-year basis, the metric rose 8.6% — the fastest pace since December 1981. This jump was led by higher gasoline and food grain prices, primarily due to the conflict between Russia and Ukraine.

Addressing shooting commodity prices is a top priority for the Federal Reserve, and it is treading the path of a rate hike to tame the same. In a bold move to battle inflation, the Fed recently announced a 75-basis point hike in the benchmark interest rate that will take the level to a range of 1.5% to 1.75%. This was the biggest rate increase since 1994.

Category-Wise Sales

The Commerce Department’s report suggests that sales at motor vehicle & parts dealers and furniture & home furnishings stores decreased 3.5% and 0.9%, respectively, on a sequential basis. Sales at health & personal care stores declined 0.2%, while the same at electronics & appliance stores fell 1.3%. Sales at miscellaneous store retailers slid 1.1%. Again, sales at non-store retailers were down 1%.

The report indicates that sales at building material & supplies dealers rose 0.2%, while the same at clothing & clothing accessories outlets jumped 0.1%. Sales at food & beverage stores increased 1.2%, while at food services & drinking places it grew 0.7%.

At sporting goods, hobby, musical instrument, & book stores, sales advanced 0.4%. The metric climbed 0.1% at general merchandise stores. Meanwhile, receipts at gasoline stations were up 4%, driven by high gasoline prices.

Past Year Price Performance


Zacks Investment Research
Image Source: Zacks Investment Research

4 Prominent Picks

You may invest in Boot Barn Holdings, Inc. (BOOT - Free Report) . This lifestyle retailer of western and work-related footwear, apparel and accessories has been successfully navigating through the challenging environment, courtesy of merchandising strategies, omni-channel capabilities and better expense management as well as marketing. This, combined with the expansion of the store base, has helped Boot Barn Holdings gain market share and strengthen its position in the industry.

This Zacks Rank #1 (Strong Buy) company has an estimated long-term earnings growth rate of 20%. The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and EPS suggests growth of 17% and 4.4%, respectively, from the year-ago period. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can count on Ulta Beauty, Inc. (ULTA - Free Report) . The company has been strengthening its omni-channel business and exploring the potential of both physical and digital facets. It has been implementing various tools to enhance guests' experience, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. Ulta Beauty focuses on offering customers a curated and exclusive range of beauty products through innovation.

Impressively, this beauty retailer and the premier beauty destination for cosmetics, fragrance, skincare products, hair care products and salon services has a trailing four-quarter earnings surprise of 49.8%, on average. We note that this Zacks Rank #1 company has an estimated long-term earnings growth rate of 10.7%. The Zacks Consensus Estimate for Ulta Beauty’s current financial year EPS suggests growth of 10.3% from the year-ago period.

Another stock worth considering is Dollar Tree, Inc. (DLTR - Free Report) . This Chesapeake, VA-based company’s strategic initiatives, including the expansion of $3 and $5 Plus assortment in Dollar Tree stores, as well as Combo Stores and H2 Renovations at Family Dollar, provide tremendous opportunities to drive sales and traffic.

Impressively, Dollar Tree has a trailing four-quarter earnings surprise of 13.1%, on average. This operator of discount variety stores has an estimated long-term earnings growth rate of 15.5%. The Zacks Consensus Estimate for Dollar Tree’s current financial year sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the year-ago period. The stock sports a Zacks Rank #1.

Tractor Supply Company (TSCO - Free Report) is another potential pick. This largest rural lifestyle retailer in the United States has been benefiting from its robust business strategies, "Life Out Here," and everyday low pricing, as well as favorable consumer demand for product categories. In addition, Tractor Supply's Neighbor's Club loyalty program remains sturdy. Its omni-channel initiatives, including curbside pickup and same-day delivery, have been aiding digital sales. We note that strength in everyday merchandise, including consumable, usable and edible products, has been fueling sales.

Tractor Supply has a trailing four-quarter earnings surprise of 12.4%, on average. The company has an estimated long-term earnings growth rate of 10.1%. The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 8.2% and 10.6%, respectively, from the year-ago period. The stock carries a Zacks Rank #2 (Buy).