4 Retail Stocks to Invest in as US Sales Rebound in July

In a surprising turn of events, U.S. retail sales rebounded in July, indicating robust consumer spending despite ongoing economic challenges. According to the latest report from the Commerce Department, retail sales rose 1% last month to $709.7 billion, better than market expectations. This surge follows a revised 0.2% decline in June.

Americans opened their wallets for big-ticket items such as vehicles and electronics. This unexpected jump in consumer activity has provided a much-needed boost to overall economic growth, dispelling fears of a looming downturn. The boost in retail sales reflects the resilience of the U.S. economy, even as higher interest rates pose challenges.

The strong retail performance comes as the Federal Reserve continues its efforts to manage inflation, which remains above the central bank's 2% target. While elevated borrowing costs have slowed areas like housing and manufacturing, the broader economy has shown an impressive ability to adapt and thrive.

Market pundits are reassessing their expectations for future Federal Reserve actions. The robust retail sales figures have cooled speculation about a significant rate cut in the near term, with many now anticipating a more measured approach from the central bank. As the United States heads into the election season, the health of the economy is likely to dominate discussions.

Breaking Down the Sales Number

Motor vehicle & parts dealers experienced a notable increase of 3.6% in sales on a month-on-month basis. Furniture & home furnishing stores led with a 0.5% increase in sales, while electronics and appliance stores experienced a 1.6% rise.

Building material & supplies dealers and food & beverage stores both registered a 0.9% jump. Health & personal care stores reported a 0.8% rise, and non-store retailers, predominantly online, showed a 0.2% increase. Gasoline stations saw marginal growth of 0.1%. General merchandise stores and food services & drinking places saw a modest uptick of 0.5% and 0.3% in sales, respectively.

Conversely, sales at clothing & accessories stores saw a decline of 0.1%, while at miscellaneous stores, the decline was more pronounced at 2.5%. Sales at sporting goods, hobbies, musical instruments & bookstores also decreased by 0.7%.

Past-Year Price Performance

Image Source: Zacks Investment Research

4 Prominent Picks

Sprouts Farmers Market, Inc. SFM, which operates in a highly fragmented grocery store industry, is a potential pick. The company has adopted a multifaceted approach to expand its customer base and cater to evolving consumer preferences. Through product innovation, targeted marketing and competitive pricing, Sprouts Farmers ensures that its offerings resonate with its diverse customer base. The company's dedication to natural and organic products has been a key strategy, recognizing the surging demand for healthier options and expanding its presence in this segment.

The Zacks Consensus Estimate for Sprouts Farmers' current financial-year sales and EPS suggests growth of 9.6% and 18.7%, respectively, from the year-ago reported figure. SFM, which sports a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12%, on average.

Chewy, Inc. CHWY, a formidable player in the online pet retail market, is worth considering. Chewy is driving its growth through several strategic initiatives. The Chewy Plus membership program, currently in beta, is set to enhance customer loyalty by offering benefits such as free shipping, cash rewards and exclusive perks. This program aims to boost sales by increasing customer engagement and wallet share. Additionally, Chewy is expanding its presence in the veterinary services market. Furthermore, Chewy's international expansion efforts, particularly in Canada, are progressing as planned.

The Zacks Consensus Estimate for Chewy's current fiscal sales and EPS suggests growth of 5.5% and 39.1%, respectively, from the year-ago reported figure. This Zacks Rank #1 company has a trailing four-quarter earnings surprise of 57.7%, on average.

Investors can count on Deckers Outdoor Corporation DECK. The company has shown robust growth through its strategic focus on expanding its brand presence and strengthening direct-to-consumer channels. This approach, along with a commitment to innovation in product development and a keen focus on international market expansion, has positioned the company for continued success. Deckers' commitment to elevating renowned brands like UGG and HOKA into global lifestyle icons enhances brand equity and market reach.

The Zacks Consensus Estimate for Deckers' current financial-year sales and earnings suggests growth of 11.5% and 8.3%, respectively, from the year-ago reported numbers. This Zacks Rank #2 (Buy) company has a trailing four-quarter earnings surprise of 47.2%, on average.

Abercrombie & Fitch Co. ANF is worth betting on. By integrating digital and physical retail experiences, Abercrombie & Fitch offers a seamless shopping experience, driving higher customer satisfaction and loyalty. Moreover, strategic marketing initiatives, particularly targeted campaigns in key markets, have been highly effective in boosting brand visibility and customer acquisition. The introduction of innovative product lines meets specific customer needs and broadens the brand's appeal. Abercrombie & Fitch's regional operating model, with a focus on the Americas, the EMEA and the APAC, provides a solid foundation for global expansion.

This leading, global, omnichannel specialty retailer of apparel and accessories for men, women and kids delivered a trailing four-quarter earnings surprise of 210.3%, on average. The Zacks Consensus Estimate for Abercrombie & Fitch's current financial-year sales and earnings suggests growth of 11.5% and 51.1% from the year-ago period. The stock carries a Zacks Rank #2.

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