4 Non-Store Retail Picks To Smartly Play Stalled July Sales

U.S. retail sales were a trifling disappointing in July, following three months of gains. Broader sales remained weak mostly due to a drop in consumer spending on clothing, electronics, restaurants and bars. Sales at auto dealers did pick up, but to what extent it can propel consumer spending is still doubtful. Amid all these discouraging trends the ones to stand out were the non-store retailers.

E-commerce players are now gaining at the expense of brick-and-mortar retailers — the latter can only fret about their lost business. Going forward, online retailers are expected to offer incentives and discounts to lure parents as it is time to head back to school, which will eventually boost sales. Hence, it will be prudent to invest in stocks from this space that boast of solid fundamentals and growth trends.

Can Auto Sales Support Spending?

Sales at retailers and restaurants remained unchanged at a seasonally adjusted $457.73 billion last month from the prior month, according to the Commerce Department. Even though sales remained stubbornly flat, it did tick up a measly 2.3% from a year earlier.

But, if we exclude sales of motor vehicles and parts, the largest category at 21% of total retail sales, growth slumped 0.3% in July, its weakest reading since January. Sales at auto and parts dealers rose 1.1% in July to $93.2 billion from the prior month. This data makes us believe that Americans flocked to auto dealers shunning other merchants; however, it isn’t clear how long auto sales will boost consumer spending levels.

Unit sales at the top three auto makers – General Motors (NYSE:GM) Company (NYSE:M) , Ford Motor Co. (NYSE:F) and Toyota Motor Corporation (NYSE:TM) – dropped in July as pent-up demand slackened. This raised concerns that demand for cars and trucks have plateaued, with the industry already harping about a car recession (read: U.S. sales mixed as second half starts with 0.5% gain, caution flags).

Struggles at Brick-And-Mortar Stores

While retail sales numbers were lackadaisical, it was a nightmare for the already struggling brick-and-mortar retailers. Departmental store sales fell 0.5% as consumers shifted their preferences to online shopping. Retail chains specializing in clothing and accessories are witnessing a continuous decline in revenues, so much so that there has been a slew of bankruptcies among chain retailers. Macy’s (NYSE:M) 141 stores are feeling the pinch, with mall owners getting nervous about continual store closings. Macy’s second-quarter revenues dropped 4% from year-ago levels, while net income tanked almost 95% (read: Retail REITs Dip on Macy's (M) Store Closure Announcement).

But, it was not only brick-and-mortar paying the price; consumers also cut back spending on sporting-goods and hobby outlets, food and beverage stores, building-material suppliers, electronics outlets and several other categories in July. In fact, sales at gasoline stations declined 2.7% mostly due to lower gas prices. According to the Energy Information Administration, regular gasoline retail prices were at an average of $2.19 a gallon this summer, almost 44 cents less compared to last summer.

E-Commerce Shining

Thanks to consumers focusing largely on online merchants including catalogs, infomercials and other types of vendors, non-store retailers registered a gain of 1.3% in July from the prior month. Compared to last year, sales surged 14.1% to $47.7 billion. Non-store retailers were the only bright spot in an otherwise weak retail sales report.

At 10.4% of total retail sales, non-store retailers picked up momentum, led by none other than Amazon.com, Inc. (NASDAQ:AMZN) . The company posted second-quarter earnings of $1.78 per share, beating our Zacks Consensus Estimate of $1.14. Revenues of $30.4 billion also beat the Zacks Consensus Estimate of $29.7 billion (read: Amazon (AMZN) Posts Q2 Earnings and Revenue Beats, Stock Pops After-Hours).

Another major Internet retailer, Alibaba Group Holding Limited (NYSE:BABA) reported first-quarter fiscal 2017 earnings of 52 cents per share, exceeding the Zacks Consensus Estimate of 38 cents. Revenues of $4.8 billion also surpassed the Zacks Consensus Estimate of $4.61 billion (read: Alibaba (BABA) Beats Q1 Earnings & Revenue Estimates).

4 Non-Store Retail Picks

Given the encouraging signs, it makes every sense to invest in the non-store retail space. Moreover, we are in the middle of August and it is time to head back to school for yet another academic term. Online sales are expected to pick up as the average American family is expected to spend more freely on school supplies this year, according to the National Retail Federation (read: 5 Back to School Stocks to Buy Now).

We have selected four stocks from the Internet e-commerce space that possess either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). Such stocks have encouraging estimated earnings growth for this year and have positive 3-month and 6-month returns.

Priceline Group Inc. (NASDAQ:PCLN) provides online travel and restaurant reservation and related services. PCLN carries a Zacks Rank #2. PCLN’s 3-month and 6-month returns are 9.4% and 32.2%, respectively (read: Priceline Earnings Beat As Usual, Shares Up).

EVINE Live Inc. (NASDAQ:EVLV) operates as a digital commerce company in the United States. The company markets, sells, and distributes products to consumers through television, online, mobile, and social media in various merchandise categories. EVLV carries a Zacks Rank #2. EVLV’s 3-month and 6-month returns are 54.1% and 223.1%, respectively.

Stamps.com Inc. (NASDAQ:STMP) provides Internet-based postage solutions in the United States. STMP carries a Zacks Rank #1. STMP’s 3-month and 6-month returns are 4.6% and 1.7%, respectively.

Petmed Express Inc. (NASDAQ:PETS) and its subsidiaries, conducting business as 1-800-PetMeds, operate as a pet pharmacy in the United States. PETS markets its products through the Internet. PETS carries a Zacks Rank #1. Its 3-month and 6-month returns are 8.2% and 23.9%, respectively.