Just when it seemed that Wall Street has got fairly accustomed to domestic issues after a tumultuous 2018, the recently reported soft holiday sales numbers may unnerve the market again. National Retail Federation (NRF) unveiled that holiday sales in 2018 did not live up to expectations in spite of signs that consumers remained somewhat optimistic about the economic scenario.
Further, the Commerce Department stated that U.S. retail and food services sales witnessed its steepest drop since September 2009 in the month of December. This has raised concerns regarding moderating pace of consumer spending in the October-December quarter of 2018. Consumer spending showcased an increase of 3.5% in the third quarter.
What the Numbers Say?
Data compiled by the NRF revealed that retail sales during the festive season rose 2.9% over last year to $707.5 billion. Clearly, this fell short of the group's projection of 4.3-4.8% increase in November and December sales (excluding autos, gas and restaurant) to $717.45-$720.89 billion.
The retail trade association also suggested that online and other non-store sales surged 11.5% to $146.8 billion, compared with growth forecast of 11-15% to $151.6-$157 billion. While sales during the month of November rose 5.1% year over year, the metric was up by a meager 0.9% in December and down 1.5% sequentially.
Per the Commerce Department, U.S. retail and food services sales in December fell 1.2% to $505.8 billion, following a downwardly revised reading of 0.1% gain in November last year. The report indicated sharp fall in sales at furniture & home furnishing stores, health & personal care stores, and sporting goods, hobby, book & music stores. Receipts at gasoline stations also took a plunge. Even e-commerce, which used to look strong, struggled.
A Brief Introspection
Market experts cited that various macro and micro issues such as U.S.-China trade conflict, volatile crude prices, tightening of monetary policy, partial government shutdown and slowing global economy might have impacted consumer behavior. These factors have a direct or an indirect bearing on consumer sentiment.
There is a lingering fear that a fall in consumer sentiment might have impacted consumers' spending pattern, which accounts for over two-thirds of the U.S. economic activity. Undoubtedly, reluctance on the part of consumers to spend more is the last thing retailers want. A group of investors believe that these factors will weigh on markets.
Nonetheless, some pundits remain skeptical about the data. Further, the NRF said "There's also a question of whether the government shutdown and resulting delay in collecting data might have made the results less reliable." Definitely, sales results come as a surprise when the economy is witnessing strong job additions and rising wages. Earlier this month, the NRF projected that retail sales will increase in the band of 3.8-4.4% to more than $3.8 trillion in 2019.
4 Prominent Picks
Well keeping aside disappointing sales results for a while, let's take a look at some retail stocks with a favorable combination of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results.
Boot Barn Holdings, Inc.BOOT , with a long-term earnings growth rate of 20.7% and a VGM Score of A, is a stock worth considering. This operator specialty retail stores delivered average positive earnings surprise of 14.6% in the trailing four quarters. The stock, which flaunts a Zacks Rank #1, has surged roughly 52% in a year. You can see the complete list of today's Zacks #1 Rank stocks here .
You can also add Zumiez Inc.ZUMZ to your portfolio. The company's shares have surged about 17% in a year. This specialty retailer of apparel, footwear, accessories and hardgoods has a VGM Score of A and a long-term earnings growth rate of 12.5%. This Zacks Rank #1 stock delivered average positive earnings surprise of 13.3% in the trailing four quarters.
Foot Locker, Inc.FL , which operates as an athletic shoes and apparel retailer, is also a solid bet with a Zacks Rank #2 and a VGM Score of A. The stock has a long-term earnings growth rate of 7.5% and increased 20% in a year. It has recorded average positive earnings surprise of 6.8% in the trailing four quarters.
Investors can also count on Darden Restaurants, Inc.DRI , which owns and operates full-service restaurants. This Zacks Rank #2 company has a long-term earnings growth rate of 10% and a VGM Score of B. The company has delivered average positive earnings surprise of 4% in the trailing four quarters and advanced about 16% in a year.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 - 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.