Retail Sales Likely to Rise Sharply as Economy Revives: 5 Picks

·6 min read

Americans look way more confident now, thanks to the two-pronged approach of massive stimulus package and stepped-up vaccinations. There is growing eagerness among consumers to venture out and shop at stores. Easing of social distancing norms and resumption of active social lifestyle and events are likely to fuel demand across a diverse set of categories. Undeniably, gradual pick-up in economic activities with more people returning to their workplace and record savings are likely to boost consumer spending activity.

Considering the favorable consumer environment and upbeat momentum in the economy, the National Retail Federation (NRF) raised its growth forecast for U.S. retail sales in 2021. Markedly, the retail trade group now envisions sales to increase between 10.5% and 13.5% to an estimated $4.44 trillion to $4.56 trillion in the current year. With e-commerce still being one of the preferred modes for shopping, the NRF anticipates non-store and online sales to jump between 18% and 23% to a range of $1.09 trillion to $1.13 trillion.

The group had earlier guided sales growth in the bracket of 6.5-8.2% for the year. Notably, the revised projection also fares far better than total retail sales of $4.02 trillion in 2020. NRF Chief Economist Jack Kleinhenz said, “Incoming data suggests that U.S. economic activity continues to expand rapidly, and we have seen impressive growth. Most indicators point toward an energetic expansion over the upcoming months and through the remainder of the year.”

Without doubt, measures undertaken to support households, firms and financial market coupled with the resumption of commercial and industrial activities have provided much needed impetus to the economy. Impressively, the NRF raised its 2021 GDP growth forecast to about 7%, from its prior expectation of 4.4% to 5%. It also hinted that pre-pandemic levels of output are likely to return this quarter.

With retailers directing resources toward advancing omni-channel capabilities, enhancing supply chain and providing faster delivery options, they look well-poised to tap any rise in demand. A look at the data released by Mastercard SpendingPulse also suggest a stellar back-to-school season for retailers, as more children head back into the classroom. Sales during the back-to-school period — Jul 15 through Sep 6 — are anticipated to increase 5.5% from the last year and 6.7% from 2019.

That said, we have highlighted five stocks from the Retail – Wholesale sector that look well positioned based on their sound fundamentals and earnings growth prospects. These stocks have either Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price Performance Past Six Months

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5 Prominent Picks

You may invest in Target Corporation TGT. The company has been deploying resources to enhance omni-channel capabilities, come up with new brands, refurbish stores and expand same-day delivery options to provide seamless shopping experience. The stock has a Zacks Rank #1 and a VGM Score of B. This general merchandise retailer has a trailing four-quarter earnings surprise of 62.1%, on average. It has a long-term earnings growth rate of 13.3%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 9.1% and 25.6%, respectively, from the year-ago period.

We suggest betting on Ulta Beauty, Inc. ULTA, which operates as a retailer of beauty products in the United States. The company has been benefiting from robust e-commerce trends, as well as strength in the skincare category. These upsides fueled first-quarter fiscal 2021 results, wherein the top and bottom lines improved year over year and crushed the Zacks Consensus Estimate. Impressively, the company has a trailing four-quarter earnings surprise of 200.6%, on average. The stock has a Zacks Rank #1 and a VGM Score of B. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 27.3% and 157.9%, respectively, from the year-ago period. It has a long-term earnings growth rate of 16.5%.

Investors can also count on The Home Depot, Inc. HD. Continued boom in renovations and construction activities bode well for the company. It is also gaining from strong growth in its Pro (professional) and DIY (Do-It-Yourself) customer categories, and continued digital momentum. Impressively, this home improvement retailer has a trailing four-quarter earnings surprise of 9.9%, on average. The stock has a Zacks Rank #2 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 8.4% and 15.5%, respectively, from the year-ago period. It has a long-term earnings growth rate of 11.4%.

Tapestry, Inc. TPR is another potential pick. The company has been benefiting from the successful execution of Acceleration Program. The program is aimed at transforming the company into a leaner and more responsive organization. It also intends to build significant data and analytics capabilities with focus on enhancing digital and omni-channel capabilities, and operating with a clearly defined path and strategy for each of its brands namely Coach, Kate Spade and Stuart Weitzman. The stock has a Zacks Rank #2 and a VGM Score of B. This provider of luxury accessories and branded lifestyle products has a trailing four-quarter earnings surprise of 74.1%, on average. It has a long-term earnings growth rate of 10%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 13.6% and 191.8%, respectively, from the year-ago period.

Five Below, Inc. FIVE, a specialty value retailer, is also worth betting on. The company’s focus on providing trend-right products, improving supply chain, strengthening digital capabilities and delivering better WOW products bodes well. It commenced fiscal 2021 on a strong note, posting better-than-expected first-quarter results, wherein both the top and bottom lines not only grew year over year but also surpassed pre-pandemic level. Impressively, the company has a trailing four-quarter earnings surprise of 96.1%, on average. The stock with a Zacks Rank #2 and a VGM Score of B has a long-term earnings growth rate of 32.5%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 40.5% and 117.9%, respectively, from the year-ago period.

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Target Corporation (TGT) : Free Stock Analysis Report

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