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Scoop Up These 5 Stocks as August Retail Sales Bounce Back

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Consumer spending activity, which is one of the pivotal factors driving the economy, held up last month, as Americans spent more on motor vehicle & parts dealers, stores, and restaurants. This was evident from the retail sales data for the month of August that bounced back after a decline in July. The Commerce Department stated that U.S. retail and food services sales in August rose 0.3% sequentially to $683.6 billion, following a downwardly revised reading of 0.4% decline registered in July.

A robust job market and decent household finances, thanks to federal relief checks received in the peak pandemic period, have allowed consumers to shield themselves from inflationary pressure to an extent. Additionally, savings from falling gasoline prices allowed consumers to redirect some bucks to other categories.

Retailers like Ulta Beauty, Inc. (ULTA - Free Report) , Arhaus, Inc. (ARHS - Free Report) , Designer Brands Inc. (DBI - Free Report) , Chico's FAS, Inc. (CHS - Free Report) and The Kroger Co. (KR) need to channelize their strength to tap any surge in consumer demand.

But the question industry experts are asking is how long this will last as soaring commodity prices as well as rising interest rates have already started pinching consumers’ pockets. The consumer price index rose 0.1% month on month in August. On a year-over-year basis, the metric rose 8.3%. With the desperate need to tame inflation, the Federal Reserve may announce a steep hike in the benchmark interest rate in the upcoming meet.

Category-Wise Sales

The Commerce Department’s report suggests that sales at motor vehicle & parts dealers and building material & supplies dealers increased 2.8% and 1.1%, respectively, on a sequential basis.

Sales at food & beverage stores increased 0.5%, while at food services & drinking places, sales grew 1.1%. At sporting goods, hobby, musical instrument, & book stores, sales advanced 0.5%. Sales at clothing & clothing accessories outlets grew 0.4%, while the same at general merchandise stores increased 0.5%. Sales at miscellaneous store retailers increased 1.6%.

The report also indicates that sales at furniture & home furnishings stores and health & personal care stores fell 1.3% and 0.6%, respectively. Sales at electronics & appliance stores declined 0.1%, while the same at non-store retailers decreased 0.7%. Meanwhile, receipts at gasoline stations dropped 4.2%.

Past Year Price Performance

 

Zacks Investment Research
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5 Prominent Picks

Ulta Beauty is worth betting on. 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.

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 32.8%, on average. We note that this Zacks Rank #1 (Strong Buy) company has an estimated long-term earnings growth rate of 11.9%. The Zacks Consensus Estimate for Ulta Beauty’s current financial year sales suggests growth of 13.7% from the year-ago period. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arhaus is another potential pick. Strong consumer demand, new collections, brand awareness and ramp-up of new showrooms have been driving Arhaus’ top-line performance. The company plans to have 165 total traditional showrooms over the period from the current count of 80 showrooms, with plans to add five to seven new traditional showrooms per year. Arhaus estimates fiscal 2022 net revenues in the band of $1,173 million to $1,193 million and foresees comparable growth in the bracket of 43% to 48%.

This lifestyle brand and premium retailer has a trailing four-quarter earnings surprise of 92%, on average, and an estimated long-term earnings growth rate of 14.3%. The Zacks Consensus Estimate for Arhaus’ current financial year sales and EPS suggests growth of 49.2% and 5.8%, respectively, from the year-ago period. The stock carries a Zacks Rank #2 (Buy).

Investors can count on Designer Brands. The company’s flexible business model, best-in-class omnichannel capabilities and Owned Brands portfolio have been the key drivers of growth. The company’s efforts to expand sourcing and supply chain capabilities have been leading to speed to market with new designs and faster delivery times.

This designer, producer and retailer of footwear and accessories has a trailing four-quarter earnings surprise of 55.1%, on average. The Zacks Consensus Estimate for Designer Brands’ current financial year sales and EPS suggests growth of 6.9% and 23.5%, respectively, from the year-ago period. The stock carries a Zacks Rank #2.

You may invest in Chico's FAS. This Florida-based fashion retailer’s efforts to become a “digital-first, customer-led” company coupled with a strong portfolio of three unique brands, namely, Chico's, WHBM and Soma, position it well to expand its customer base and market share. Product enhancement, planned inventories, operating discipline and marketing strategies have been helping to drive full-price selling, lower markdowns and produce higher gross margin.

Chico's has a trailing four-quarter earnings surprise of 249%, on average. The Zacks Consensus Estimate for Chico's current financial year sales and EPS suggests growth of 19.6% and 112.5%, respectively, from the year-ago period. The stock carries a Zacks Rank #2.

Kroger is another lucrative option. The company, which operates in the thin-margin grocery industry, has been undergoing a complete makeover not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company has been adding new products as well as eyeing technological expansion to enhance its omnichannel reach. Kroger has been making significant investments to enhance product freshness and quality, and expand digital capabilities. The company has been introducing items under its “Our Brands” portfolio.

Kroger has a trailing four-quarter earnings surprise of 15.7%, on average. The company has an estimated long-term earnings growth rate of 11.7%. The Zacks Consensus Estimate for Kroger’s current financial year sales and EPS suggests growth of 7.8% and 9.8%, respectively, from the year-ago period. The stock carries a Zacks Rank #2.

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