Pick up these 5 stocks as August retail sales rebound – September 19, 2022

Consumer spending, which is a key driver of the economy, held up last month as Americans spent more on motor vehicle and parts dealers, stores and restaurants. This is evident in retail sales data for August, which rebounded from a decline in July. The Commerce Department said August U.S. retail and foodservice sales rose 0.3% sequentially to $683.6 billion, after a downwardly revised reading of 0. 4% recorded in July.

A robust labor market and decent household finances, thanks to federal relief checks received at the height of the pandemic period, provided consumers with some protection from inflationary pressures. Additionally, savings from falling gasoline prices have allowed consumers to redirect some of the money to other categories.

Retailers love Ulta Beauty, Inc. (ULTA free report), Arhaus, Inc. (ARS free report), Designer Brands Inc. (DBI free report), Chico’s FAS, Inc. (CHS free report) and The Kroger Company. (KR) must channel their strength to exploit any increase in consumer demand.

But the question for industry experts is how long this will last, as soaring commodity prices as well as rising interest rates have already started to pinch consumers’ pockets. The consumer price index rose 0.1% month on month in August. Year-over-year, the measure increased by 8.3%. With the desperate need to control inflation, the Federal Reserve could announce a sharp hike in the benchmark interest rate at the next meeting.

Sales by category

The Commerce Department report suggests that sales at motor vehicle and parts dealers and building materials and supplies dealers rose 2.8% and 1.1%, respectively, on a sequential basis.

Sales at food and beverage stores rose 0.5%, while those at food services and drinking places rose 1.1%. At sporting goods, hobby, musical instrument and book stores, sales rose 0.5%. Sales at clothing and clothing accessories stores rose 0.4%, while those at general merchandise stores rose 0.5%. Retailer sales in miscellaneous stores increased by 1.6%.

The report also said sales at furniture and home furnishings stores and health and personal care stores fell 1.3% and 0.6%, respectively. Sales at electronics and appliance stores fell 0.1%, while sales at non-store retailers fell 0.7%. Meanwhile, gas station revenues fell 4.2%.

Past Year Price Performance

Image source: Zacks Investment Research

5 important choices

Ultimate beauty worth betting. The company strengthened its omnichannel business and explored the potential of physical and digital facets. He has implemented various tools to improve the customer experience, such as offering a virtual try-on tool and in-store training, and reinventing fixtures, among others. Ulta Beauty is focused on providing customers with a curated and exclusive range of beauty products through innovation.

This beauty retailer and leading beauty destination for cosmetics, fragrances, skin care products, hair care products and salon services has a last four quarter profit surprise of 32.8% , on average. We note that this Zacks #1 (Strong Buy) company has an estimated long-term earnings growth rate of 11.9%. Zacks’ consensus estimate for Ulta Beauty’s current fiscal year sales suggests growth of 13.7% over the prior year period. You can see the full list of today’s Zacks #1 Rank stocks here.

Arhaus is another potential choice. Strong consumer demand, new collections, brand awareness and the ramp-up of new showrooms drove Arhaus’ performance. The company plans to have 165 traditional showrooms in total over the period from the current number of 80 showrooms, with plans to add five to seven new traditional showrooms per year. Arhaus estimates fiscal 2022 net revenue in the range of $1,173 million to $1,193 million and expects comparable growth in the range of 43% to 48%.

This premium lifestyle brand and retailer has a trailing four-quarter earnings surprise of 92%, on average, and an estimated long-term earnings growth rate of 14.3%. Zacks’ consensus estimate for Arhaus’ current year sales and EPS suggests growth of 49.2% and 5.8%, respectively, over the prior year period. The stock carries a Zacks rank No. 2 (buy).

Investors can rely on Designer brands. The company’s flexible business model, industry-leading omnichannel capabilities and portfolio of proprietary brands were key growth drivers. The company’s efforts to expand sourcing and supply chain capabilities have resulted in faster time to market with new designs and faster delivery times.

This designer, producer and retailer of shoes and accessories has a surprise on earnings for the last four quarters of 55.1% on average. Zacks’ consensus estimate for Designer Brands’ current year sales and EPS suggests growth of 6.9% and 23.5%, respectively, over the prior year period. The stock carries a No. 2 Zacks rank.

You can invest in Chico’s FAS. This Florida-based fashion retailer’s efforts to become a “digital-first, customer-focused” business, coupled with a strong portfolio of three unique brands, namely, Chico’s, WHBM and Soma, positions it well to expand its customer base and market share. Improved product, planned inventory, operational discipline and marketing strategies have helped drive full price sales, reduce markdowns and produce a higher gross margin.

Chico’s has a four-quarter earnings surprise of 249%, on average. Zacks’ consensus estimate for Chico’s current year sales and EPS suggests growth of 19.6% and 112.5%, respectively, over the prior year period. The stock carries a No. 2 Zacks rank.

Kroger is another lucrative option. The company, which operates in the low-margin grocery industry, has undergone a complete overhaul not only in terms of products, but also in terms of how consumers prefer to shop. The company has added new products and is considering technology expansion to improve its omnichannel reach. Kroger has made significant investments to improve product freshness and quality and expand digital capabilities. The company introduced items to its “Our Brands” portfolio.

Kroger has a four-quarter earnings surprise of 15.7% on average. The company has an estimated long-term earnings growth rate of 11.7%. Zacks’ consensus estimate for Kroger’s current-year sales and EPS suggests growth of 7.8% and 9.8%, respectively, over the prior-year period. The stock carries a No. 2 Zacks rank.

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