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5 Retail Picks to Add to Your Cart as April Sales Shoot Up

Following lackluster growth in the first three months of this year, retail sales have picked up in April. In fact, sales at retailers touched the highest level last month in more than a year. Gains were robust, with auto dealers, gas stations and Internet retailers left grinning. This is a welcome relief, especially after a string of discouraging results from department stores in the first quarter that raised questions about the financial health of consumers.

A steady rise in income levels is also expected to lift consumer spending, which will eventually boost retail sales in the future. Moreover, consumer confidence in the U.S. has already gained strength in May. Hence, it will be prudent to invest in fundamentally sound stocks from the retail sector.

Retail Sales Post Biggest Gain in a Year

Sales at retailers jumped 1.3% in April from a month earlier, the biggest gain since Mar 2015, according to the Commerce Department on Friday. This leap in retail sales was led by gains among auto dealers, gas stations and online merchants. Demand at auto dealers moved north at the fastest pace in a year, while sales at Internet outlets were the strongest in almost two years.

Internet and catalog sales had surged more than 10% in the past year as Americans showed more of an inclination to purchase goods online. Departmental stores figures, on the other hand, sank 1.7% over the last 12 months.

Nevertheless, April’s gains were broad based with 11 out of 13 major retail categories showing increases. Besides, the “core retail sales” figure that excludes cars, petrol, building materials and food services gained 0.9% in April, the most since Mar 2014. Core sales figure was also revised up 0.2% in March, which was larger than previously reported.

Auto Dealers, Gas Stations and Online Merchants Lead

Purchases at auto dealers advanced 3.2% in April, a sharp reversal from the 3.2% decline registered in the previous month. This figure was more or less in line with industry data. Sales of cars and light trucks increased at an annualized rate to 17.3 million in April, according to the Ward’s Automotive Group. April’s data indicated that Americans were drawn toward purchasing SUVs and pickup trucks, banking on cheaper fuel costs and low interest rates.

Gas stations posted a 2.2% increase in sales in April. In March, sales at gas stations had increased 3.1%. Meanwhile, Internet and mail-order sales leapt 2.1% last month. This category includes online vendors such as, Inc. AMZN. According to Morgan Stanley MS, Amazon is now the second largest apparel seller in the U.S., a category once dominated by department stores.

These e-commerce giants are coming up with better results than the traditional retailers, as evident from their recent earnings reports. Nonetheless, the struggling brick and mortar department stores also posted a gain of 0.3% in sales in April.

Retailers Ringing Recession Alarm?

Traditional retailers such as Macy’s, Inc. M and Kohl’s Corp. KSS are left wondering why there is this disconnect between an improving economy and spending at their stores. Both companies have reported a drop in same-store sales for the first quarter, while Kohl’s profit fell below estimates as well.  Macy’s also slashed its outlook as sales took a plunge.

Logic, however, says that healthier household finances, as reflected by the increase in income, are expected to shore up profits for such retailers.  According to the Commerce Department, personal income increased to 0.4% in March, more than the downwardly revised 0.1% in February. Based on this faster rate of income, it is expected that consumers will be able to spend more in the near term.

Wages have already grown significantly last month. Average hourly earnings ticked up 8 cents in April following a 6 cent increase the month before. Plenty of job opportunities also remain in many high-paying industries and with the unemployment rate at 5%, there is no immediate reason to remain concerned that the job market is souring.

Top 5 Retail Stocks to Boost Your Portfolio

As mentioned above, improvement in income will help sales at retail outlets to gain momentum in the near future. Wage growth has already propelled U.S. retail sales in April, suggesting that consumers could help revive economic growth in the current quarter. U.S. consumer confidence also soared to its strongest level in almost a year in May. The University of Michigan preliminary consumer sentiment index for this month came in at 95.8, way ahead of April’s final reading of 89.

As the future looks good for the retail sector, supported by April’s stellar performance, it will be a smart move to invest in stocks related to retail. We have selected five stocks from the retail sector that boast a Zacks Rank #1 (Strong Buy) or #2 (Buy).

However, it is important to remember that picking winning stocks may not be easy. Hence, we have narrowed down our search with a VGM score of ‘A’ or ‘B.’ Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.

U.S. Auto Parts Network, Inc. PRTS operates as an online retailer of aftermarket auto parts and accessories primarily in the U.S. PRTS has a Zacks Rank #1 and a VGM Score of ‘A.’ Overall, sales at motor vehicles and parts dealers gained 4.5% in April on a year-over-year basis.

The Kroger Co. KR operates mostly grocery stores in the U.S. KR has a Zacks Rank #2 and a VGM Score of ‘B.’ Overall, sales at grocery stores advanced 2.5% in April on a year-over-year basis.

Shoe Carnival Inc. SCVL operates as a family footwear retailer primarily in the U.S. SCVL has a Zacks Rank #2 and a VGM Score of ‘A.’ Overall, sales at clothing & clothing accessories stores increased 1.9% in April on a year–over-year basis.

Chuy’s Holdings, Inc. CHUY operates restaurants under the Chuys name in Texas and 14 states in the southeastern and midwestern U.S. CHUY has a Zacks Rank #2 and a VGM Score of ‘B.’ Overall, sales at food services & drinking places surged 7.4% in April on a year-over-year basis.

Cabela’s Inc. CAB operates generally sporting goods stores in the U.S. CAB has a Zacks Rank #2 and a VGM Score of ‘B.’ Overall, sales at sporting goods, hobby, book and music stores soared 7.4% in April on a year-over-year basis.

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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
US AUTO PARTS (PRTS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
CABELAS INC (CAB): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
KROGER CO (KR): Free Stock Analysis Report
SHOE CARNIVAL (SCVL): Free Stock Analysis Report
CHUYS HOLDINGS (CHUY): Free Stock Analysis Report
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