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American Retail Brushes Off Sears Collapse: 5 Picks

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Sears Holding Corp’s bankruptcy would have matched the overall U.S. retail industry scenario a year ago, but not now. Unlike Sears, things are looking up for retailers as American consumers are now the most confident since 2000. In the upcoming holiday season, retailers are, in fact, poised to see an uptick in sales.

Sears’ Failure Won’t Affect Retail                                   

Sears, once a dominant force in the U.S. retail space, filed for bankruptcy last week. A series of store closures and deals failed to turn things around for the retailer, which listed $6.9 billion in assets and $11.3 billion in liabilities in the filing. Sears also said that it will shut down additional 142 unprofitable stores by the end of this year. Sears and its Kmart stores are now left with 894 stores in the United States, compared to 3,500 between them when they merged in 2005.

The company had announced that its CEO, Edward Lampert, stepped down after the firm failed to clear $134 million in debt. Like Toys “R” Us, Sears had seen cash flow constraint due to interest payments with the added pressure of pension liabilities.

Sears’ attempt to restructure debts and sell more assets didn’t work at a time when retailers like Walmart Inc. (WMT - Free Report) and Target Corporation (TGT - Free Report) are surviving by investing heavily in e-commerce and experimenting with new brands and ideas.

In fact, shoppers nowadays feel more confident to spend resulting in the mushrooming of plusher malls. Needless to say, retailers are gearing up to end the year with an uptick in sales. It can thus be safely concluded that Sears’ bankruptcy is a solo case and not an industry trend.

Things Looking Up for Retailers

U.S. consumer confidence soared to its highest in 18 years in September, per the Conference Board, a business research organization. The consumer confidence index climbed to 138.4 last month from an upwardly revised 134.7 in August.

 

Consumers’ optimism was largely driven by strength in the labor market. Nonetheless, such a record-high consumer confidence number is a significant reading since it has been, historically, good at predicting consumer spending for the next three to six months. These numbers influence companies’ production schedule. In fact, retailers are mostly affected as spending plays a major role in determining revenues. Lynn Franco, director of economic indicators at the Conference Board, added that “these historically high confidence levels should continue to support healthy consumer spending, and should be welcome news for retailers as they begin gearing up for the holiday season.”

The National Retail Federation further stated that retail sales in November and December, barring automobiles, gasoline and restaurants, are expected to rise 4.3% to 4.8% over the same period last year for a total of $717.45 billion to $720.89 billion. This is way more than an average annual increase of 3.9% for the past five years.

 

5 Solid Choices

Since retailers are positioned to benefit from this stellar reading on confidence level and a probable uptick in holiday sales, picking stocks from the space will be a smart move. We have, thus, selected five solid retail stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Burlington Stores, Inc. (BURL - Free Report) — a Zacks Rank #2 company — operates as a retailer of branded apparel products in the United States. The Zacks Consensus Estimate for its current-year earnings has increased 3.7% in the last 60 days. The company’s expected earnings growth rate for the current quarter and year are 50% and 42.3%, respectively.

Target — a Zacks Rank #2 company — operates as a general merchandise retailer in the United States. The Zacks Consensus Estimate for its current-year earnings has increased 0.2% in the last 60 days. The company’s expected earnings growth rate for the current quarter and year are 20.9% and 14.2%, respectively.

Dollar General Corporation (DG - Free Report) — a Zacks Rank #2 company — provides various merchandise products in the Southern, Southwestern, Midwestern, and Eastern United States. The Zacks Consensus Estimate for its current-year earnings has increased 0.7% in the last 60 days. The company’s expected earnings growth rate for the current quarter and year are 28.6% and 35.9%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tilly's, Inc. (TLYS - Free Report) — a Zacks Rank #1 company — retails casual apparel, footwear, and accessories. The Zacks Consensus Estimate for its current-year earnings has increased 11.1% in the last 60 days. The company’s expected earnings growth rate for the next quarter and current year are 41.7% and 38.5%, respectively.

Urban Outfitters, Inc. (URBN - Free Report) is a lifestyle products and services company. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 0.4% in the last 60 days. The company’s expected earnings growth rate for the current quarter and year are 53.7% and 59.3%, respectively.

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