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4 ETF Areas to Play Despite Soft January Retail Sales

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In January, U.S. retail sales experienced a setback, slipping more than anticipated. The Commerce Department's Census Bureau reported a 0.8% drop in retail sales for the month, down from a 0.4% gain in December and worse than the estimate for a 0.3% drop (per a CNBC article). The drop in sales was caused declines in both auto dealership and gasoline service station receipts.

Compounding the situation, data for December underwent a downward revision. Initially reported as a 0.6% increase, December's retail sales were revised lower to show a 0.4% rise. This adjustment suggests that the previous month's performance was not as robust as initially indicated, setting a less favorable backdrop for January's figures.

Impact of Winter Storms

The retail sector's performance was further hurt by the impact of winter storms during the month. Inclement weather conditions across various parts of the country likely deterred consumers from venturing out for shopping, thereby affecting sales across multiple retail segments.

Seasonal Factors and Holiday Season Impact

The decline in retail sales for January also reflects the normalization of consumer spending following the holiday season peak in December. Seasonal factors, which typically influence retail sales data, played a role in the observed downturn.

However, while January's figures may raise concerns about underlying consumer sentiment and spending patterns, it is essential to consider broader economic trends and external influences when assessing the health of the retail sector.

Below we highlight a few areas and the related ETFs & stocks that may benefit handsomely from the retail sales.

Winning Areas

Food and Drink Places

Sales at restaurants and bars increased 6.3% year over year and 0.7% sequentially.

AdvisorShares Restaurant ETF (EATZ - Free Report) – The AdvisorShares Restaurant ETF is an actively managed exchange-traded fund that seeks to achieve its investment objective by investing at least 80% of its net assets in securities of companies that derive at least 50% of their net revenue from the restaurant business. The fund charges 99 bps in fees.

Dave & Buster's Entertainment (PLAY - Free Report) – The Zacks Rank #2 (Buy) company is a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families.

Furniture & Home Furnishing Stores

The segment saw a 1.5% sequential gain in sales, though sales were down 9.8% year over year.

VanEck Retail ETF (RTH - Free Report) – The underlying MVIS US Listed Retail 25 Index tracks the overall performance of companies involved in retail distribution, wholesalers, on-line, direct mail and TV retailers, multi-line retailers, specialty retailers and food and other staples retailers. The fund houses two top home improvement companies – Home Depot and Lowe’s Corp. Both companies hold about 15% of the fund.

Home Depot (HD - Free Report) – The Zacks Rank #3 (Hold) company is the world’s largest home improvement specialty retailer.

Grocery Stores

Sales at grocery stores rose 2.3% year over year and 0.6% sequentially.

Consumer Staples Select Sector SPDR ETF (XLP - Free Report) – The underlying Consumer Staples Select Sector Index seeks to provide an effective representation of the consumer staples sector of the S&P 500 Index. The fund charges 10 bps in fees.

Walmart (WMT - Free Report) – The Zacks Rank #3 company helps people around the world save money and live better by providing the opportunity to shop in both retail stores and through eCommerce, and to access its other service offerings.

Non-Store Retailers

Sales at non-store retailers rose 6.4% year over year in January. On a sequential basis, sales dropped 0.8% in January.

Amplify Online Retail ETF (IBUY - Free Report) -- The underlying index of the fund utilizes a rule-based methodology to select a globally diversified group of companies with 70% or more sales coming online and virtually. The fund charges 65 bps in fees. (AMZN - Free Report) -- is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe. The stock has a Zacks Rank #1 (Strong Buy).



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