Retails Sales Increase in August: 6 Solid Stocks to Buy

U.S. retail sales increased for the fourth straight month in August, although it grew slower than expected. One of the main reasons for this was that extended unemployment benefits were cut for millions of Americans. However, the retail sector has finally started to bounce back after taking a massive hit during the peak of the pandemic.

Moreover, retail sales were once again driven by e-commerce, which witnessed a year-over-year jump. Although coronavirus-related restrictions have eased, and businesses and stores have started reopening, most people are still shopping online, which is giving a boost to online sales.

Retail Sales Jump Despite Challenges

U.S. retail sales rose 0.6% in August from the previous month, marking a slowdown from a 0.9% increase in July and missing economists’ expectations of a 1% rise. This category, which excludes automobiles, gasoline, building materials and food services, had advanced 1.4% in July.

The figures offer an early sign of the effects on consumer spending after emergency jobless benefits expired at the end of July. Although the rise is negligible, the good sign is that the sector is trying to get back on its feet after a brutal plunge in March and April. Given the growing popularity of online shopping in the pandemic, e-commerce sales jumped 22% from last year. Spending on categories, including DIY, furniture and motor vehicles, was higher than it was a year ago.

Spending at Restaurants, Cafes Increase

Despite the overall month-on-month slowdown, retail sales increased 2.6% from August 2019. Spending at food and beverage stores remained particularly strong, increasing 10% on a year-over-year basis despite a 1.2% decline from July.

August is usually an important month for retailers given the back-to-school spending. Yet sales crept up only 2.9% on a month-over-month basis at clothing stores. Spending at restaurants and bars picked up more briskly, climbing 4.7% from July as parts of the country resumed indoor dining.

The Commerce Department also said that grocery spending increased 9% year over year. Grocery has been a major driver of retail sales during the coronavirus pandemic, as people stockpiled on essentials. Also, U.S. and consumer spending improved in July, indicating that life is somewhat going back to normal.

Our Choices

The jump in retail sales in August once again signals a steady recovery. Retail sales are about 2% higher now compared to pre-pandemic levels in February, but they would almost certainly be higher had there been no viral outbreak. With more stores likely to open in the coming weeks, it is expected that people will once again go shopping. However, e-commerce will continue to play a dominant role. Given this situation, it might be prudent to invest in retail stocks that also have a strong online presence.

Walmart Inc. WMT has evolved from just being a traditional brick-and-mortar retailer into an omnichannel player. Walmart’s offerings include almost everything from grocery to cosmetics, electronics to stationery, home furnishings to health and wellness products among others.

The company’s expected earnings growth rate for the current year is 7.1%. The Zacks Consensus Estimate for current-year earnings has improved 17.9% over the past 60 days. Walmart carries a Zacks Rank #2 (Buy).

Target Corporation TGT has evolved from just being a pure brick & mortar retailer to an omni-channel entity. The company has been investing in technologies, improving websites and mobile apps, and modernizing the supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players.

The company’s expected earnings growth rate for next year is 11.9%. The Zacks Consensus Estimate for current-year earnings has improved 41.9% over the past 30 days. Target sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Brinker International, Inc. EAT primarily owns, operates, develops and franchises various restaurants under the Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s) brands. 

The company’s expected earnings growth rate for the current year is 19.9%. The Zacks Consensus Estimate for current-year earnings has improved 60.2 over the past 60 days. Brinker International flaunts a Zacks Rank #1.

DICKS Sporting Goods, Inc. DKS operates as a major omni-channel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf, water sports, etc.

The company’s expected earnings growth rate for the current year is 3%. The Zacks Consensus Estimate for current-year earnings has improved more than 1,000% over the past 30 days. Dicks Sporting sports a Zacks Rank #1.

Dominos Pizza Inc. DPZ delivers pizzas under the Domino’s Pizza brand, is a top player in the Quick-Service Restaurant or QSR Pizza category. It operates as a pizza delivery company in the United States and internationally, with over 15,900 locations in more than 85 markets.

The company’s expected earnings growth rate for the current year is 33.8%. The Zacks Consensus Estimate for current-year earnings has improved 4.9 over the past 60 days. Dominos Pizza carries a Zacks Rank #2.

The Kroger Co. KR operates supermarkets, multi-department stores, marketplace stores and price impact warehouse stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; and multi-department stores provide apparel, home fashion and furnishings, outdoor living, electronics, automotive products, and toys.

The company’s expected earnings growth rate for the current year is 44.1%. The Zacks Consensus Estimate for current-year earnings has improved 11.6% over the past 60 days. Kroger has a Zacks Rank #2.

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