4 Solid Stocks to Buy on Continued Surge in Retail Sales

The U.S. retail sector is showing robust signs of recovery amid increasing pressures of surging commodity prices. Although retailers are among the first to be affected during times of rising costs, the sector has managed to put up an impressive show.

According to the latest report from the Commerce Department, retail sales increased in April, driven by higher demand amid inflation. However, there are still several challenges that the sector needs to overcome. Given this situation, stocks like Boot Barn Holdings, Inc. BOOT, Costco Wholesale Corporation COST, Levi Strauss & Co. LEVI and Williams-Sonoma, Inc. WSM are likely to benefit in the near term.

Retail Sales Increase

U.S. retail sales increased a solid 0.9% in April, the Commerce Department said on May 17. However, it was slightly below expectations of a rise of 1.1%. Excluding autos, retail sales rose 0.6%, higher than expectations of a rise of 0.4%.

Besides an impressive April, the department also revised the March retail sales figures from the actual estimate of a rise of 0.5% to a jump of 1.4%. Excluding autos, March sales were revised to an impressive jump of 2.1% against the original figure of 1.1%.

On a year-over-year basis, overall retail sales were up 8.2% in April, while sales rose 10.9% excluding autos. Most of the categories posted higher gains compared to March.

April’s gains were driven by a 4% rise in miscellaneous retail sales, while online retail sales jumped 2.1% month over month. Besides, sales at restaurants and bars increased by 2%. More importantly, April’s jump came despite a 2.7% decline at gasoline stations as energy prices decreased during this period.

Retail Sector Making Steady Recovery

The sector is on solid ground despite massive challenges being faced by retailers. Rising costs and a hike in interest rates have been a major cause of concern, with inflation having reached a 40-year high in April.

The Fed has already increased interest rates by 75 basis points March and is likely to go for at least another three hikes this year in a bid to check surging inflation. Commodity prices have been on the rise for the past several months now.

Consumer price inflation increased 8.3% year over year in April. Even then, people are buying aggressively as demand for goods has been on the rise. This has been helping the retail sector as higher demand is pushing people to buy goods even at higher prices.

A separate report from Mastercard SpendingPulse report also shows a similar trend. According to Mastercard SpendingPulse, total retail sales excluding autos increased 7.2% year over year in April, and 15.3% from the pre-pandemic spending in 2019.

Retail sales are likely to increase in the coming days despite rising prices. There are several reasons behind this. Hiring is on the rise once again in the United States, while unemployment claims are on a steady decline. This means that more people are returning to work. As more people return to work, there will also be a rise in personal income and spending.

Both personal income and spending in the United States climbed in March. Personal income rose 0.5% in March, while personal spending jumped 1.1%.

Our Choices

Boot Barn Holdings, Inc. operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. BOOT’s products include boots, denim, western shirts, cowboy hats, belts and belt buckles, and western-style jewelry and accessories. Boot Barn sells its products through bootbarn.com, an e-commerce Website.

Boot Barn Holdings’ expected earnings growth rate for the current year is 4.4%. The Zacks Consensus Estimate for current-year earnings has improved 17.3% over the past 60 days. BOOT carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation sells high volumes of food and general merchandise (including household products and appliances) at discounted prices through membership warehouses. Costco is one of the largest warehouse club operators in the United States. COST also operates e-commerce websites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.

Costco Wholesale Corporation’s expected earnings growth rate for the current year is 18%. The Zacks Consensus Estimate for current-year earnings improved 0.8% over the past 60 days. COST has a Zacks Rank #2 (Buy).

Levi Strauss & Co. designs and markets jeans, casual wear and related accessories for men, women and children under the Levi's, Dockers, Signature by Levi Strauss & Co. and Denizen(R)brands. LEVI’s products are sold through chain retailers, department stores, online sites and brand-dedicated retail stores and shop-in-shops. Levi Strauss & Co. is based in San Francisco, United States.

Levi Strauss & Co.’s expected earnings growth rate for the current year is 5.4%. The Zacks Consensus Estimate for current-year earnings has improved 2% over the past 60 days. LEVI carries a Zacks Rank #2.

Williams-Sonoma, Inc. is a multi-channel specialty retailer of premium quality home products. WSM has five brands and each of the brands are operating segments. Williams-Sonoma also offers cookware, tools, cutlery, electrics, tabletop and bar, outdoor, furniture and cookbooks.

Williams-Sonoma’sexpected earnings growth rate for the current year is 6.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the past 60 days. WSM has a Zacks Rank #2.

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Costco Wholesale Corporation (COST) : Free Stock Analysis Report
 
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
 
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