Warming Up to Retail: 2 Choices - Analyst Blog

Winter's chill is over. The economy is warming up and consumers' optimism is reflected in a series of upbeat economic reports. The most positive outcome of the newly felt warmth is last month's retail data.

Record Retail Data

March retail sales increased by 1.1%, following the 0.7% increase in February. More significantly, sales excluding those at gas stations were the highest in four years. Overall, March retail sales moved up the most since September 2012.

With temperatures going up, consumers have gone shopping, pushing up sales at general merchandise stores. Sales at the likes of Wal-Mart Stores Inc. ( WMT ), Target Corp. ( TGT ) and Macy's, Inc. ( M ) increased at the fastest rate in seven years.

According to Redbook Research, retailers have also gained from the fact that Easter was celebrated later than usual. This has resulted in an increase in sales volume. Last week, the research firm said its Johnson Redbook Sales Index showed sales for the second week of April increased by 3.7% compared to the year ago period.

Bullish Economic Data

Other economic data also suggests that consumers may to continue to shop at this pace. The Leading Indicators Index moved up 0.8% in March. According to an economist of business research association Conference Board, this indicates "accelerated growth for the remainder of the spring and the summer." The index is based on several economic indicators, including consumer confidence and employment.

Data released this morning reveals that growth has slowed to an extremely sluggish 0.1% during the first quarter of the year. However, this is being viewed as an outcome of a bitter winter, and economic activity is expected to pick up pace on the back of retail numbers and manufacturing data. Factory production increased 0.5% in March, following a 1.4% increase in February.

A vibrant retail sector is crucial for the health of the economy. At the same time, retail stocks are prudent investment choices. Below we present two retail stocks which possess the potential to grow appreciably, each of which also has a good Zacks rank.

Spartan Stores

Spartan Stores ( SPTN ) is a premier regional food retailer and distributor based in Grand Rapids, Michigan. The company's retail segment conducts its operation through wholly owned subsidiary Seaway Food Town, Inc. The company has several private brands such as its flagship Spartan brand, health and beauty care brand Top Care and pet supplies brand Paws.

Spartan Stores also has a distribution segment, operated by wholly owned subsidiary Spartan Stores Distribution, LLC. This segment supplies a comprehensive selection of national brand and private label grocery and related products to retail grocery stores and its own retail stores.

The company holds a Zacks Rank #1 (Strong Buy) and has expected earnings growth of 18.60%. The forward price-to-earnings ratios (P/E) for the current financial year (F1) is 11.91.

Kroger Company

Kroger ( KR ) is one of the nation's largest grocery retailers operating 2,640 supermarkets and multi-department stores in 34 states and the District of Columbia under approximately 24 local banners. These are Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, King Soopers, QFC, Harris Teeter, Ralphs and Smith's.

In addition, Kroger directly, or through subsidiaries or franchisee and operating agreements, runs 786 convenience stores, 320 fine jewelry stores, 1,240 supermarket fuel centers, and 38 food processing plants.

Currently the company holds a Zacks Rank #2 (Buy), and has expected earnings growth of 13.00% It has a P/E (F1) of 14.14.

The P/E numbers for these stocks show that they are also excellent value choices. Taken together with the recent rebound in the retail sector, these two choices would make excellent additions to your portfolios.

KROGER CO (KR): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

SPARTAN STORES (SPTN): Free Stock Analysis Report

TARGET CORP (TGT): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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