U.S. Retail Sales Log The Best Gain In 6 Months: 5 Picks

U.S. retail sales in May logged the biggest gain in the last six months, as Americans’ spending spree remains solid regardless of higher gas prices.

Continued upswing in retail numbers from April through May confirmed that a tightening labor market, upbeat wage rates and lower taxes are leading to more money in commoners’ wallets.

Apparel shops, restaurants, departmental stores, automobile retailers, building-materials outlets, to name a few, saw an uptick in sales last month. So, it’s time to invest in retailers that are likely to make the most of the bullish economic sentiments.

What Do the Numbers Exhibit?

Yesterday’s Commerce Department report revealed that overall U.S. retail sales in May jumped 0.8% to $502 billion, marking its biggest gain since November 2017. Sales upswing was 5.9% last month, on a year-over-year basis. April sales were, in fact, revised to show a 0.4% advance instead of 0.2%.

The so-called core retail sales that exclude food services, auto dealers, building materials stores and gasoline stations rose 0.5%, subsequent to an upwardly revised 0.6% gain in April. This indicated that the rise in gasoline prices failed to curb consumer spending levels.

Per the U.S. Energy Information Administration, the national average price for a gallon of gasoline was $2.92 in May, up almost 16 cents from April and the highest since mid-2014. With global oil prices rising on account of intense Venezuelan political drama, Trump’s Iran deal pullback and the Organization of the Petroleum Exporting Countries’ intension to curb production, gasoline prices are likely to remain elevated.

Winners & Losers

Retail sales growth was mostly broad-based in May, with 10 of the 13 major retail categories witnessing a rise in sales.

Sales at clothing stores shot up 1.3%, notching the highest advance in more than a year. Receipts at restaurants and bars also grew 1.3%, marking its best advance since January 2017. Last month’s sales in departmental stores rose 1.5% -- the best level since the beginning of 2017.

Heightened hurricane rebuilding activities pushed up building-materials’ sales by 2.4%, against the dip of 0.8% in April. Purchases from automobile and part dealers improved 0.5%, outperforming the 0.2% growth recorded in the prior month.

Sales at service stations improved 2%, on account of higher gasoline prices. The continued upswing in prices, if sustained, might pull away spending from other categories going forward.

Three sectors – sporting goods and hobby stores, food and beverage, and furniture and home furnishings failed to add up in May’s retail numbers. Notably, sales at the furniture stores skidded 2.4%, marking the worst fall since December 2013.

What Stoked Spending?

Thursday’s solid retail report signaled that U.S. economy will likely remain a bustling one in the second quarter. Perhaps that’s why the Fed policy makers lifted interest rates for the second spell in 2018 on Wednesday and signaled additional hikes in the back half of the year.

A separate report released by the Labor Department yesterday disclosed that weekly jobless claims dipped to a 45-year low in America, bolstering the country’s stretched workforce market scenario. The unemployment rate dipped to 3.8% in May, its lowest level since the dot-com roar of the early 2000. Also, a 2.7% year-over-year upswing in last month’s average hourly earnings wiped out fears of wage stagnation.

Additionally, the December enacted tax overhaul helped to boost up Americans’ take-home pay. While the top rate of individual income tax brackets got trimmed from 39.6% to 37%, the 33% bracket declined to 32%, the 28% bracket to 24%, the 25% bracket to 22%, and the 15% bracket to 12%.

Notably, upbeat consumer sentiment propelled consumer prices 2.8% higher in May from a year earlier, per the Labor Department.

Retails sales were sturdy across the board last month and will likely continue to improve going forward. Steady job growth, higher wages and lower corporate taxes are expected to cushion the impact of costlier fuel prices.

5 Top Winners

Taking the spending spree into account, retailers are set to witness a strong rally. Hence, it will be prudent to invest in five of the best retail stocks from the categories that have witnessed a significant rise in receipts. We have shortlisted such stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B.

Urban Outfitters, Inc. (NASDAQ:URBN) , a premium lifestyle products company, offers wholesale and retailing services for general consumer products.

The Zacks Consensus Estimate for earnings has moved up 9.7% to $2.49 per share for fiscal 2019 (ending January 2019), in the last 60 days. Notably, the projected year-over-year earnings and sales growth rates for this Pennsylvania-based company are currently pegged at 49.1% and 8.3%, respectively, for fiscal 2019. Urban Outfitters’ shares have gained 28% in the past three months. The stock sports a Zacks Rank #1 and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here..

Insight Enterprises, Inc. (NASDAQ:NSIT) offers information technology software, hardware and service solutions in the global forum.

The stock sports a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for earnings has moved up 10.6% to $4.38 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings and sales growth rates for this Arizona-based company are currently pegged at 35.2% and 7.4%, respectively, for 2018. Insight Enterprises’ shares have gained 41.7% in the past three months.

Tilly's, Inc. (NYSE:TLYS) sells apparel, accessories, and footwear for young women and men, girls and boys in the United States.

The stock carries a Zacks Rank #2 and has a VGM Score of A. The Zacks Consensus Estimate for earnings has moved up 3.8% to 81 cents per share for fiscal 2019 (ending January 2019), in the last 60 days. For fiscal 2019, the projected year-over-year earnings and sales growth rates for this California-based company are currently pegged at 24.6% and 2%, respectively. Tilly's shares have gained 24.2% in the past three months.

Herbalife Nutrition Ltd. (NYSE:HLF) develops and markets non-imitable nutrition solutions in the global forum.

The stock carries a Zacks Rank #2 and has a VGM Score of B. The Zacks Consensus Estimate for earnings has moved up 1.1% to $2.68 per share for 2018, in the last 60 days. The 2018 projected year-over-year earnings growth rate for this California-based company is currently pegged at 10.3%, while sales growth is estimated at 9.8%. Herbalife Nutrition’s shares have gained 11.2% in the past three months.

Tesco (LON:TSCO) PLC (OTC:TSCDY) is a premium United Kingdom-based multinational grocery retailer.

The stock carries a Zacks Rank #2 and has a VGM Score of A. The Zacks Consensus Estimate for earnings has moved up 7.4% to 58 cents per share for fiscal 2019 (ending February 2019), in the last 60 days. The projected year-over-year earnings and sales growth rates for the company are currently pegged at 26.1% and 21.9%, respectively, for fiscal 2019. Tesco’s shares have gained 13.7% in the past three months.

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Urban Outfitters, Inc. (URBN): Free Stock Analysis Report

Tilly's, Inc. (TLYS): Free Stock Analysis Report

Herbalife LTD. (HLF): Free Stock Analysis Report

Insight Enterprises, Inc. (NSIT): Free Stock Analysis Report

Tesco PLC (TSCDY): Free Stock Analysis Report

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