U.S. consumer confidence — a key determinant of the economy’s health — stumbled to a six-month low in May. Concerns related to a slowing economy, particularly the labor market, and the fear of a possible recession have hit consumers’ sentiments. Per the Conference Board, the Consumer Confidence Index fell to 102.3 in May from April’s upwardly revised reading of 103.7.
A slump in consumers' confidence may have a direct impact on consumer spending, which accounts for more than two-thirds of U.S. economic activity. Also, the Fed’s aggressive rate hikes to tame inflation made things tough for consumers by squeezing disposable income. Consequently, the demand has softened. Ataman Ozyildirim, Senior Director, Economics at The Conference Board, said, “Their assessment of current employment conditions saw the most significant deterioration, with the proportion of consumers reporting jobs are ‘plentiful’ falling 4 ppts from 47.5 percent in April to 43.5 percent in May. Consumers also became more downbeat about future business conditions, weighing on the expectations index.” That said, retailers such as Urban Outfitters, Inc. ( URBN Quick Quote URBN - Free Report) , Abercrombie & Fitch Co. ( ANF Quick Quote ANF - Free Report) , Walmart Inc. ( WMT Quick Quote WMT - Free Report) and The Kroger Co. ( KR Quick Quote KR - Free Report) have been focusing on a superior product strategy, the advancement of omnichannel capabilities and prudent capital investments to strike the right chord with consumers. They have been directing resources toward digital platforms, accelerating fleet optimization and augmenting the supply chain. We have highlighted four stocks from the Retail-Wholesale sector that sport a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here Past Year Price Performance Image Source: Zacks Investment Research 4 Prominent Picks
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Urban Outfitters. The company’s strategic growth initiative, FP Movement, and store-related efforts bode well. The FP Movement brand retail segment’s comparable sales increased 48% in the first quarter of fiscal 2024. Better fashion execution and robust marketing have been driving traffic. This leading lifestyle product and services company has an estimated long-term earnings growth rate of 18%. The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and EPS suggests growth of 5% and 53.7%, respectively, from the year-ago period. This Zacks Rank #1 stock has a trailing four-quarter earnings surprise of 12.2%, on average. Investors can count on Abercrombie & Fitch. The company has been making strategic investments across stores, digital and technology to drive top and bottom-line growth. The company also remains on track with its 2025 Always Forward Plan. Moreover, a strong balance sheet allows it to navigate the current macroeconomic environment. This leading, global, omnichannel specialty retailer of apparel and accessories for men, women and kids has a trailing four-quarter earnings surprise of 480.6%, on average. The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 3.1% from the year-ago period. ANF presently sports a Zacks Rank #1. Another stock worth considering is Walmart. The company has been gaining from its sturdy comp sales record, driven by its constant expansion efforts and splendid e-commerce performance. Walmart has been undertaking several efforts to enhance merchandise assortments. Also, the company has been focused on store remodeling to upgrade them with advanced in-store and digital innovations. This omnichannel retailer has an estimated long-term earnings growth rate of 5.5%. The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period. This Zacks Rank #2 stock has a trailing four-quarter earnings surprise of 12%, on average. Kroger, which operates in the thin-margin grocery industry, is another potential pick. The company has been undertaking efforts to strengthen its position not only with respect to products but also in terms of the way consumers shop. It has been making investments to enhance product freshness and quality as well as expand digital capabilities. Kroger has been augmenting the Our Brands portfolio by launching new products. Kroger has a trailing four-quarter earnings surprise of 9.8%, on average. This Zacks Rank #2 company has an estimated long-term earnings growth rate of 6%. The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 2.5% and 6.6%, respectively, from the year-ago period.