U.S. retail sales rebounded in August after a sharp decline in July. Solid consumer spending defying the spread of the Delta variant of coronavirus has surprised many financial experts. The positive momentum is likely to continue as several market researchers have predicted strong holiday retail sales this year.
Strong Retail Sales in August
The Department of Commerce reported that retail sales rebounded to the positive territory with a gain of 0.7% in August after a sharp decline in the previous month. July’s data was revised downward from a drop of 1.1% to a decline of 1.8%. The consensus estimate for August was also for a drop of 0.9%.
Core retail sales (excluding auto sales) jumped to 1.8% in August compared with the consensus estimate of a decline of 0.1%. Core retail sales in July was revised downward to a drop of 1% from a fall of 0.4% reported earlier.
Despite the growing threat of the Delta variant, in absolute term, retail sales climbed 15.1% year over year in August. Online sales surged 5.3% last month. Restaurants and bars suffered the most due to the resurgence of the COVID-19 infection as their sales remained flat month over month. Yet, year over year, sales in restaurants and bars soared 31.9%.
Impressive Projections for Holiday Sales 2021
On Sep 14, CNBC reported strong projections for holiday retail sales given by several market researchers. Per the report, Deloitte forecast holiday retail sales in 2021 to surge 7-9% year over year to reach $1.28 to $1.3 trillion during the November to January timeframe. Out of the total, e-commerce sales are likely to soar 11-15% year over year to $210-$218 billion.
Mastercard (NYSE:MA) SpendingPulse estimated that U.S. retail sales will surge 7.4% year over year in 201 from Nov 1 to Dec 24. In-store sales are likely to rebound this year with an expected jump of 6.6% year over year supported by persistent strong demand.
Moreover, Bain projected that U.S. retail sales will grow 7% year over year between November and December 2021. Additionally, KPMG expects U.S. holiday retail sales to grow 7% year over year in 2021. The KPMG survey revealed that on average, U.S. retailers expect online sales to grow 35% year over year this year.
Implications of Robust Retail Sales
Retail sales consist of a major part of U.S. consumer spending. Importantly, consumer spending is the largest driver of the U.S. economy comprising nearly 2/3rd of the GDP. Personal savings of Americans are around an astonishing $2 trillion. The sky-high savings are allowing people to indulge in their demands that were pent up during lockdowns and are in turn compelling businesses to expand their scale of operations.
A growing U.S. economy, nationwide COVID-19 vaccination, a higher wage rate, robust job openings, record personal savings, an extremely low interest rate regime and an impressive stock market (despite September’s volatility) are likely to act as the drivers for a solid holiday season.
Our Top Picks
We have narrowed down our search to seven retailers with strong potential for the rest of 2021. These stocks have seen positive earnings estimate revisions within the last 30 days, indicating that the market is expecting these companies to do good business in the near-term. Finally, these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our seven picks year to date.
Image Source: Zacks Investment Research
Best Buy Co (NYSE:BBY). Inc. BBY operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company operates through two segments — Domestic and International.
Demand for technology products and services remains strong. Solid consumer spending ability backed by government stimulus and high savings is bolstering demand. Strong omni-channel efforts aided growth in the company’s digital sales, in the domestic channel.
The company has an expected earnings growth rate of 25.8% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings improved 16.9% over the last 30 days.
Foot Locker (NYSE:FL) Inc. FL is a retailer of athletic shoes and apparel. The company operates in two segments, North America and International. The company gained from strong demand for apparel and accessories. In particular, women’s and kids footwear businesses did well. Less promotional activity and continued growth in the digital realm were also upsides.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings improved 18.9% over the last 30 days.
The Gap Inc (NYSE:GPS). GPS operates as an apparel retail company. It gained from continued strength at the Old Navy and Athleta brands, improved marketing efforts, better brand management, and advanced technology. It also reported strong growth in key metrics on a two-year basis, reflecting robust growth from the pre-pandemic levels.
Sales benefited from strength in its Old Navy and Athleta brands as well as a solid online show. This along with improved margins aided the bottom line. Gap raised its view for fiscal 2021. The Gap remains on track with its Power Plan 2023.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 1.4% over the last 7 days.
Ulta Beauty (NASDAQ:ULTA) Inc. ULTA operates as a retailer of beauty products in the United States. The company has been seeing market share gains in major beauty categories for a while now, with skincare standing out. Its foremost priority is to strengthen its omnichannel business and explore the potential of both physical and digital facets.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 22.8% over the last 30 days.
Kohl's Corp (NYSE:KSS). KSS operates as a retail company in the United States. It has been benefiting from its strategic framework, which focuses on driving top-line growth, expanding operating margin, implementing disciplined capital management as well as undertaking an agile, accountable and inclusive culture. Kohl’s strong brand portfolio and partnerships are driving growth.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 43.3% over the past 30 days.
Macy's Inc. (NYSE:M) M is an omnichannel retail organization, operating stores, websites and mobile applications. The company has been benefitting from efforts undertaken as part of the Polaris (NYSE:PII) Strategy including boosting assortments and optimizing store portfolio.
During second-quarter fiscal 2021, the company witnessed sturdy growth across all three brands namely; Macy’s, Bloomingdale’s and Bluemercury. Management is on track to strengthen its omni-channel capabilities with investments in online shopping experiences, data and analytics as well as better fulfillment capabilities.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 7 days.
RH (NYSE:RH) RH operates as a retailer in home furnishings. It offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings.
The accelerated demand for home furniture and furnishing products is primarily attributable to the robust momentum in the housing market. The company has been exhibiting strong profitability, buoyed by its focus on improving profit margins and creating a new and differentiating shopping experience with the addition of hospitality (restaurants as well as cafes) in new galleries.
The company has an expected earnings growth rate of 45.3% for the current year (ending January 2022). The Zacks Consensus Estimate for its current-year earnings has improved 10.6% over the last 7 days.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Macys, Inc. (M): Free Stock Analysis Report
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Foot Locker, Inc. (FL): Free Stock Analysis Report
Ulta Beauty Inc. (ULTA): Free Stock Analysis Report
RH (RH): Free Stock Analysis Report
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