4 Retail Stocks to Buy as Sales Soar on Rising Costs

U.S. retail sales rose more than expected in June amid surging commodity prices. Higher demand for goods has been driving retail sales and inflationary pressures haven’t yet been able to dent consumers’ sentiment. The retail sector had suffered a lot over the past two years that saw sales plummeting, but the sector has steadily bounced back.

This year, so far, has proved to be great for retailers, as sales have continued to rise almost every month. Given this scenario, retailers like Canada Goose Holdings Inc. GOOS, The TJX Companies, Inc.TJX, Dollar Tree, Inc. DLTR and J.Jill, Inc. JILL are likely to do well in the near term.

Retail Sales Bounce Back

The Commerce Department said on Jul 15 that retail sales rose 1% in June, beating economists’ expectations of a 0.9% rise. This comes after a slight decline in sales in May. However, May’s figures were revised to a decline of 0.1% from the earlier reported 0.3%.

Sales grew across several categories in June, the report said. Some of the gains were also attributed to soaring gasoline and food prices. However, the retail sector made a solid comeback in June.

Excluding autos, retail sales grew 1%, beating expectations of a 0.7% rise. The report mentions that sales were widespread as people bought automobiles and furniture, and spent at restaurants.

Auto sales rose 0.9% in June. Sales at gasoline stores jumped 3.6%, playing a major role in driving sales. Sales at bars and restaurants grew 1%.

E-commerce once again played a major role in driving retail sales. Online sales increased 2.2%, while sales at furniture and home sales increased 1.4%.

Retail Sector Still Going Strong

Inflation rose 9.1% in June to reach a 41-year high but demand for goods has continued to rise. Although consumers are spending cautiously, higher food prices are making them spend more, which is translating into higher sales for merchants. However, even then, higher retail sales prove that they haven’t succumbed to inflationary pressure.

A separate Mastercard SpendingPulse report also showed retail sales growth in June. According to the Mastercard SpendingPulse, June retail sales jumped 9.5% year over year. Excluding auto and gasoline, retail sales grew 6.1% year over year in June.

People spent more money on commodities during the pandemic's peak and less on services, since companies remained shuttered or partially open. Following the major immunization effort, things began to change in the beginning of 2021. However, obstacles in the shape of the Omicron and Delta coronavirus subtypes prevented people from confidently leaving their houses.

However, this year, when the economy began to almost fully recover, many people started feeling more secure about leaving their houses. In addition, despite increased costs, people have begun booking vacations and going on trips. Spending on hotel and air travel is up 33.7% and 18.2%, respectively, over the previous year.

Also, despite growing concerns over economic slowdown, consumer sentiment hasn’t hit rock bottom. U.S. consumer confidence is once again above the 50 mark, which is a good sign. The University of Michigan's Consumer Confidence Index edged higher to a reading of 51.5 in July, beating expectations of 49.9.

Our Choices

The retail sector is still performing well, and so long as demand for goods continues to grow, sales should be on the rise. This is thus the right opportunity to invest in retail stocks that have both a strong offline and online presence and boast a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Canada Goose Holdings Inc. is a global outerwear brand. Canada Goose is a designer, manufacturer, distributor and retailer of premium outerwear for men, women and children. GOOS’s jackets are sold in 36 countries around the world, including in two owned retail stores and four e-commerce stores.

Canada Goose Holdings’ expected earnings growth rate for the current year is 64.4%. The Zacks Consensus Estimate for current-year earnings has improved 6.7% over the past 60 days.

The TJX Companies, Inc. is a leading off-price retailer of apparel and home fashions in the United States and worldwide. TJX’s broad range of assortments at varying prices helps it to reach out to a broad range of consumers. In addition, The TJX Companies tries to attract consumers through a rapid turn of inventories.

The TJX Companies’ expected earnings growth rate for the current year is 11.6%. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the past 60 days.

Dollar Tree, Inc. is an operator of discount variety stores offering merchandise and other assortments. DLTR’s stores successfully operate in major metropolitan areas, mid-sized cities and small towns. Dollar Tree offers a wide range of quality everyday general merchandise in many categories, including houseware, seasonal goods, candy and food, toys, health and beauty care, gifts, party goods, stationery, books, personal accessories, and other consumer items.

Dollar Tree’s expected earnings growth rate for the current year is 40.5%. The Zacks Consensus Estimate for DLTR’s current-year earnings has improved 3% over the past 60 days.

J.Jill, Inc. operates as a specialty retailer of women’s apparel. The company offers sweaters, tops, pants, dresses, shorts, skirts, sleepwear and accessories. J. Jill markets through retail stores, website and catalog.

J.Jill’s expected earnings growth rate for the current year is 25.4%. The Zacks Consensus Estimate for JILL’s current-year earnings has improved 19.2% over the past 60 days.

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