Sales at U.S. retailers picked up last month disregarding the rise in gas prices. Americans ramped up spending on wage gains and bigger paychecks owing to the recent tax cuts.
Apparel outlets, furniture merchants, building-materials outlets, Internet retailers and department stores, to name a few, saw an uptick in sales. Thus, it's time to invest in retailers that are likely to make the most of the bullish sentiments.
Retail Sales - The Numbers
Retail sales that measure outlays at stores, online-shopping websites and restaurants increased at a seasonally adjusted rate of 0.3% in April from March, according to the Commerce Department. March sales were, in fact, revised to show a 0.8% advance instead of 0.6%.
The so-called core retail sales that exclude food services, auto dealers, building materials stores and gasoline stations rose 0.3%, after an upwardly revised 0.4% gain in March. This indicated that rise in gasoline prices failed to affect consumer spending levels.
Per the U.S. Energy Information Administration, the national average price for a gallon of gasoline came in at $2.76 in April, up almost 17 cents from March and the highest since mid-2015. With global oil prices rising after Trump's decision to pull the United States out of the Iran nuclear deal and impose tougher sanctions on Tehran, gasoline prices are likely to remain elevated (read more: Trump Nixes Iran Nuclear Deal: Winners & Losers ).
Winners & Losers
Retail sales were mostly broad-based, excluding gasoline and autos. Nine of the 13 major retail categories saw a rise in sales, with clothing and accessories retailers notching the highest increase last month. This is because Americans purchased new outfits for the warm weather. Sales at clothing stores shot up 1.4%.
Receipts at furniture stores increased 0.8%, while sales were up 0.2% at department stores and 0.3% at general merchandise outlets. Receipts at building material stores also rose 0.4% last month and online retail sales advanced 0.6%.
Grocery-store sales, in the meantime, went up 0.5% in April from the prior month. Kemper Isley, chairman and co-president of Natural Grocers by Vitamin Cottage, Inc., a Colorado-based chain said that they "are pleased with the continued sales momentum."
But, sales at restaurants and bars dropped 0.3%, the steepest decline since February 2017. Receipts at electronics and appliance stores, sporting goods and hobby stores, and health and personal care stores also fell 0.1%, 0.1% and 0.4% last month, respectively.
What Drove Spending?
Consumer outlays were off to a firm start this quarter after slowing sharply in the first quarter. April's increase in spending came on the heels of a strong jobs market in at least two decades. April marked the 91st successive month of job additions, by far, the longest streak of job gains on record. At the same time, the jobless rate was 3.9%, the lowest since 2000. Average earnings also ticked up by 4 cents an hour and 2.6% year over year (read more: In a Tight Employment Market, Staffing Services are in Demand ).
The recent cut in taxes increased take-home pay. This in turn gave Americans the means to spend. The "Tax Cuts and Jobs Act" lowered the individual income tax brackets. While the top rate 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%.
The rise in spending level easily outpaced the uptick in prices of essential commodities. After all, the consumer price index increased 2.5% in April from a year earlier, per the Labor Department.
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. Such stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy).
DSW Inc. DSW operates as a branded footwear and accessories retailer in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 1.9% in the last 60 days. The stock's projected growth rate for the current quarter is 15.6%, compared with the industry 's estimated decline of 14.5%.
The Buckle, Inc. BKE operates as a retailer of casual apparel, footwear, and accessories for young men and women in the United States. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose almost 9% in the last 60 days. The stock's projected growth rate for the current quarter is 2.9%, compared with the industry 's expected fall of 14.5%.
Dollar General Corporation DG provides various merchandise products in the southern, southwestern, Midwestern, and eastern United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 0.8% in the last 60 days. The stock's projected growth rate for the current quarter is 35.9%, compared with the industry 's estimated gain of 25.6%. You can see the complete list of today's Zacks #1 Rank stocks here.
Kohl's Corporation KSS operates as an omni-channel retailer in the United States. Its stores and website offer apparel, footwear, accessories, beauty, and home products. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 0.2% in the last 60 days. The stock's projected growth rate for the current year is 25.3%, compared with the industry 's expected gain of 1.2%.
Amazon.com, Inc. AMZN engages in the retail sale of consumer products and subscriptions in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS) segments. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 42.5% in the last 60 days. The stock's projected growth rate for the current quarter is 505%, compared with the industry 's gain of 65.9% (read more: Amazon's Retail & Budding Web Services Make It a Real Deal ).
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report DSW Inc. (DSW): Free Stock Analysis Report Buckle, Inc. (The) (BKE): Free Stock Analysis Report Dollar General Corporation (DG): Free Stock Analysis Report Kohl's Corporation (KSS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research