Sales at U.S. retailers bounced back in July following June’s dip as Americans splurged on nonobligatory items like cars, furniture and appliances, to name a few. Consumers opened their wallets despite financial stress due to elevated interest rates and a weakening labor market.

Anyhow, the unprecedented increase in consumer spending quelled recession fearmongering. What’s more, with inflationary pressure subsiding, consumer outlays are further likely to increase. Thus, stocks such as Best Buy Co., Inc. (BBY Quick QuoteBBY - Free Report) , Brinker International, Inc. (EAT Quick QuoteEAT - Free Report) and Cars.com Inc. (CARS Quick QuoteCARS - Free Report) are well-poised to directly benefit from the promising economic backdrop and an uptick in retail sales.

Retail Sales Post Biggest Gain in 1 ½ Years

Retail sales increased 1% month over month in July, following a downwardly revised drop of 0.2% in June, per the Census Bureau of the Commerce Department. Retail sales, thus, notched its biggest jump in a year and a half and easily surpassed analysts’ expectations of an increase of 0.3%. 

Source: Commerce Department’s Census Bureau

Retail sales, excluding gasoline, food, building materials and automobiles advanced by 0.3% last month after a 0.9% increase in the month before.   Nonetheless, overall retail sales jumped 2.7% annually in July, while total sales from May through July were up 2.4% compared to the same period a year ago. 

Broad-Based Retail Gains

Retail sales increased 3.6% at motor vehicle and part dealers. Automobile dealers had to endure a nationwide cyberattack on their software systems that hampered sales in June. However, many of the sales deals were finalized in July. 

Sales at electronics and appliance stores increased 1.6% in July, while sales were up 0.9% at food and beverage outlets. Receipts at groceries, pharmacies, home centers, and electronic retailers also improved in July. Meanwhile, sales at online retailers rose 0.2% last month after jumping 2.2% in June, thanks to Amazon.com, Inc.’s (AMZN Quick QuoteAMZN - Free Report) annual Prime Day sales. 

Cooling Inflationary Pressure

Consumer spending is further expected to improve and boost sales at retail outlets in the near term. This is because price pressures are ebbing, giving Americans the wherewithal to shell out. 

The consumer price index increased 2.9% annually in July, less than June’s yearly rate of 3%, added the US Bureau of Labor Statistics. The annual rate increased at the lowest pace since March 2021. Similarly, the producer price index increased 2.2% year over year in July, less than June’s 12-month inflation rate of 2.7% (read more: Tamed Inflation Bolsters September Rate Cut: PHM, MU, ATO to Gain).

3 Likely Winners From Upbeat Retail Sales: BBY, EAT, CARS

With retail sales recovering last month and further poised to improve banking on soft inflation, placing bets on fundamentally sound retailers seems prudent at the moment. Lest we forget, retail behemoth Walmart Inc. (WMT Quick QuoteWMT - Free Report) has already echoed the theme of solid consumer spending and raised its outlook in the recent quarterly earnings report (read more: Walmart Share Price on Upswing Before Q2 Earnings: Time to Buy?).

These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also have a VGM Score of A or B. Here, V stands for Value, G for Growth, and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy – Retailer of Consumer Electronics

Best Buy’s initiatives to invest in systems and boost omni-channel capabilities should certainly lift its profit margins. Best Buy has a Zacks Rank #2 and a VGM Score of B. 

The Zacks Consensus Estimate for BBY’s current-year earnings has increased 1.3% over the past 90 days. The company’s expected earnings growth rate for the next five years is 5.1%. 

Brinker International – Known for Brands such as Chili’s

Brinker International, renowned for providing a casual dining experience, is benefiting immensely from its traffic-driving initiatives and effective menu pricing. Brinker International has a Zacks Rank #1 and a VGM Score of A. 

The Zacks Consensus Estimate for EAT’s current-year earnings has increased 5.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 15.4%.

Cars.com – An Online Automotive Platform 

Cars.com’s audience-driven technology has quite successfully simplified the purchasing and selling vehicle procedures. CARS has a Zacks Rank #2 and a VGM Score of A. 

The Zacks Consensus Estimate for CARS’s current-quarter earnings has increased 1.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 13.8%.

Shares of Best Buy, Brinker International, and Cars.com have gained 2.2%, 104.4%, and 27%, respectively, over the past two years.
 

Image Source: Zacks Investment Research