What Does The March Tick-up In Sales Mean For Retailers?

Bargain hunters are back on the streets buying furniture and appliances, and dining out, as U.S. retail sales rebounded sharply in the month of March, thus ending the streak of three straight declines. With strengthening labor market, tax reform and rising incomes Americans look much more confident now. Moreover, annual tax refunds are also likely to increase their propensity to consume. Clearly, consumer spending — one of the pivotal factors driving the economy — is likely to remain strong in the months ahead.

Retail Sales Bounce Back

The Commerce Department stated that U.S. retail and food services sales in March advanced 0.6% to $494.6 billion — following a decline of 0.1% and 0.2% registered in February and January, respectively. Analysts cited that slump in retail sales in the first two months of the year was a temporary hitch after a sturdy holiday season. Although unfavorable weather played spoilsport, Easter holiday lifted consumers’ shopping spirit.

Notably, retail sales improved 4.5% from March 2017. The report suggests that sales at motor vehicles and parts dealers increased 2%, while sales at electronics & appliance stores rose 0.5%. Meanwhile, sales at food & beverage stores and receipts at restaurants witnessed growth of 0.2% and 0.4%, respectively. Sales at non-store retailers climbed 0.8% and increased 9.7% from the prior-year period.

However, receipts at gasoline stations and sales at building material dealers fell 0.3% and 0.6%, respectively. Sales at sporting goods, hobby, book & music stores dipped 1.8%, while at clothing shops the same fell 0.8%.

This Means a Lot to Retailers

Pick up in retail sales is welcome news for retailers, whose fortunes depend upon consumers’ willingness to spend. A robust job market, massive tax cuts and sound economic fundamentals are likely to boost consumer confidence. We expect this positive sentiment to translate into higher consumer spending. Certainly, favorable economic indicators along with friendlier fiscal and regulatory policies from the current regime bode well for the sector.

For obvious reasons, retailers are the end gainers. With digital transformation in shopping, retailers are fast adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. Moreover, National Retail Federation’s projection of an uptick in U.S. retail sales of 3.8-4.4% this year raises optimism. Additionally, the recent cut in corporate tax rate will allow retailers to channelize the surplus money toward best possible alternatives.

Notably, the Retail-Wholesale sector has advanced roughly 10% in the past six months and has comfortably outperformed the S&P 500’s growth of 5%. Markedly, the sector is anticipated to witness year-over-year bottom-line growth of 12%, per the Earnings Preview. This fares much better than the previous quarter, where earnings climbed 3%. The top line is also projected to increase 7.6% compared with 9.7% growth registered in the preceding quarter.

Wrapping Up

With earnings season all set to gather momentum it will be prudent to hold on to some retail stocks that are likely to beat estimates. These are stocks with a favorable combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Macy's, Inc. (NYSE:M) has an Earnings ESP of +5.14% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kohl's Corporation (NYSE:KSS) has an Earnings ESP of +0.91% and a Zacks Rank #2.

The Gap, Inc. (NYSE:GPS) has an Earnings ESP of +2.35% and a Zacks Rank #2.

Costco Wholesale Corporation (NASDAQ:COST) has an Earnings ESP of +1.05% and a Zacks Rank #3.

Dollar Tree, Inc. (NASDAQ:DLTR) has an Earnings ESP of +1.87% and a Zacks Rank #3.

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