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Will Soft February Retail Sales Raise Investors' Concerns?
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U.S. retail sales in February recorded the smallest gain in six months. This raises concerns about the health of the economy at a time when things have just started to look up under the Trump regime with major markets scaling new highs. However, industry experts are not willing to take things at face value and cited that the delay in income tax refunds may have resulted in soft retail sales last month. They remain quite optimistic about sales picking up in March on the back of an improving job scenario, rising wages and spiraling confidence along with tax refunds.
Retail Sales Inch Up
The Commerce Department stated that U.S. retail and food services sales for the second month of 2017 increased 0.1% to $474 billion, following a revised upward reading of 0.6% growth registered in January. Retail sales increased 5.7% from Feb 2016. This shows that consumer spending – accounting for over two-thirds of U.S. economic activity and one of the pivotal factors driving the economy – remains strong.
The report suggested that sales at motor vehicles and parts dealers declined 0.2%, while receipts at gasoline stations fell 0.6%. Excluding motor vehicles and automotive parts, sales rose 0.2% last month. Sales at non-store retailers increased 1.2% in February and increased 13% from the prior-year period. Sales at building material and supplies dealers increased 1.8%.
Does the Economy Hold Promise?
The recent rebound in oil prices, an encouraging employment picture, and a gradual improvement in the manufacturing sector and housing market signal that the economy is on a recovery mode. The economy added 235,000 jobs in February, while the unemployment rate was down to 4.7%.
The underlying strength in the economy coupled with inflation nearing the desired level prompted the Federal Reserve to increase the benchmark interest rate. The Fed raised the short-term rate by 25 basis points to a range of 0.75% to 1% for the third time since recession. The economy is not in bad shape and analysts believe that Janet Yellen may go for another hike in June and then again in December.
How is the Retail Sector Placed?
The Retail-Wholesale sector, which occupies a bottom position in the list of Zacks categorized sectors (16 out of 16), has not been an outstanding performer. Although favorable economic indicators coupled with friendlier fiscal and regulatory policies from the current administration bode well, there are still some concerns that can upset investors.
According to the latest Earnings Outlook report, as of Mar 15, 2017, the sector is expected to witness a decline of 4.4% in the bottom line during the first quarter of 2017. Further, we note that in the past one year, the sector has registered an increase of 8.9% compared with the S&P 500 that advanced 16.3%. Moreover, from a valuation perspective too, the sector looks quite stretched.
Looking at the sector’s price-to-earnings (P/E) ratio it looks pretty overvalued when compared with the S&P 500. The sector currently has a trailing 12-month P/E ratio of 25.06. This compares unfavorably to an extent with what the sector saw in the past one year. The ratio is marginally above the median level of 24.99 and almost near its high level of 25.83 over this period. On the contrary, the trailing 12-month P/E ratio for the S&P 500 is 20.53.
Strategies to Counter the Challenges
The sector does not look much promising in the short run, given the challenging retail landscape, stiff competition and waning store traffic. These have compelled retailers to revisit their strategies. They are now focusing more on enhancing their omni-channel capabilities, optimizing store fleet and restructuring activities.
Retailers are efficiently allocating a large chunk of their capital toward a multi-channel growth strategy focused on improving merchandise offerings, developing IT infrastructure to enhance the web and mobile experience of customers, renovating stores, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system as well as enhancing their relationship with existing and new customers.
The Children's Place, Inc. (PLCE - Free Report) , Best Buy Co., Inc. (BBY - Free Report) , Dollar Tree, Inc. (DLTR - Free Report) , Staples, Inc. , Michael Kors Holdings Limited , Macy's, Inc. (M - Free Report) and other renowned retailers are trying all means to reach their target customers.
Zacks Rank
Among the aforementioned stocks, The Children's Place sports a Zacks Rank #1 (Strong Buy), while Best Buy holds a Zacks Rank #2 (Buy). The remaining stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
More Stock News: 8 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.
A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>
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Will Soft February Retail Sales Raise Investors' Concerns?
U.S. retail sales in February recorded the smallest gain in six months. This raises concerns about the health of the economy at a time when things have just started to look up under the Trump regime with major markets scaling new highs. However, industry experts are not willing to take things at face value and cited that the delay in income tax refunds may have resulted in soft retail sales last month. They remain quite optimistic about sales picking up in March on the back of an improving job scenario, rising wages and spiraling confidence along with tax refunds.
Retail Sales Inch Up
The Commerce Department stated that U.S. retail and food services sales for the second month of 2017 increased 0.1% to $474 billion, following a revised upward reading of 0.6% growth registered in January. Retail sales increased 5.7% from Feb 2016. This shows that consumer spending – accounting for over two-thirds of U.S. economic activity and one of the pivotal factors driving the economy – remains strong.
The report suggested that sales at motor vehicles and parts dealers declined 0.2%, while receipts at gasoline stations fell 0.6%. Excluding motor vehicles and automotive parts, sales rose 0.2% last month. Sales at non-store retailers increased 1.2% in February and increased 13% from the prior-year period. Sales at building material and supplies dealers increased 1.8%.
Does the Economy Hold Promise?
The recent rebound in oil prices, an encouraging employment picture, and a gradual improvement in the manufacturing sector and housing market signal that the economy is on a recovery mode. The economy added 235,000 jobs in February, while the unemployment rate was down to 4.7%.
The underlying strength in the economy coupled with inflation nearing the desired level prompted the Federal Reserve to increase the benchmark interest rate. The Fed raised the short-term rate by 25 basis points to a range of 0.75% to 1% for the third time since recession. The economy is not in bad shape and analysts believe that Janet Yellen may go for another hike in June and then again in December.
How is the Retail Sector Placed?
The Retail-Wholesale sector, which occupies a bottom position in the list of Zacks categorized sectors (16 out of 16), has not been an outstanding performer. Although favorable economic indicators coupled with friendlier fiscal and regulatory policies from the current administration bode well, there are still some concerns that can upset investors.
According to the latest Earnings Outlook report, as of Mar 15, 2017, the sector is expected to witness a decline of 4.4% in the bottom line during the first quarter of 2017. Further, we note that in the past one year, the sector has registered an increase of 8.9% compared with the S&P 500 that advanced 16.3%. Moreover, from a valuation perspective too, the sector looks quite stretched.
Looking at the sector’s price-to-earnings (P/E) ratio it looks pretty overvalued when compared with the S&P 500. The sector currently has a trailing 12-month P/E ratio of 25.06. This compares unfavorably to an extent with what the sector saw in the past one year. The ratio is marginally above the median level of 24.99 and almost near its high level of 25.83 over this period. On the contrary, the trailing 12-month P/E ratio for the S&P 500 is 20.53.
Strategies to Counter the Challenges
The sector does not look much promising in the short run, given the challenging retail landscape, stiff competition and waning store traffic. These have compelled retailers to revisit their strategies. They are now focusing more on enhancing their omni-channel capabilities, optimizing store fleet and restructuring activities.
Retailers are efficiently allocating a large chunk of their capital toward a multi-channel growth strategy focused on improving merchandise offerings, developing IT infrastructure to enhance the web and mobile experience of customers, renovating stores, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system as well as enhancing their relationship with existing and new customers.
The Children's Place, Inc. (PLCE - Free Report) , Best Buy Co., Inc. (BBY - Free Report) , Dollar Tree, Inc. (DLTR - Free Report) , Staples, Inc. , Michael Kors Holdings Limited , Macy's, Inc. (M - Free Report) and other renowned retailers are trying all means to reach their target customers.
Zacks Rank
Among the aforementioned stocks, The Children's Place sports a Zacks Rank #1 (Strong Buy), while Best Buy holds a Zacks Rank #2 (Buy). The remaining stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
More Stock News: 8 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.
A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>