Retailers Cap A Robust Holiday-Shopping Season: 5 Must Buys

Retailers capped a healthy holiday-shopping season last year as Americans continued to spend at stores at a steady clip. Spending increased at both online and bricks-and-mortar stores and restaurants, and was largely fueled by low unemployment level, rise in income and more confident consumers. Such factors will further drive retailers in the upcoming year.

In fact, spending can get a kick from the $1.5-trillion package of tax cuts approved by the Republican-controlled U.S. Congress and signed into law by President Trump last month. These massive tax cuts will drive household income and in turn increase the propensity to consume. This calls for investors to cash in on the hottest retailers right away.

December Retail Sales Rise

Households bought a range of goods in December, helping retail sales increase for four straight months. Retail sales rose 0.4% last month and figures for the prior month were revised higher as per the Commerce Department. Retail sales for last month also rose 5.4% from a year ago. In 2017, such sales advanced 4.2% compared to 3.2% in 2016.

The so-called core retail sales went up 0.3% last month following an upwardly revised 1.4% gain in November. Sales were supported by a jump in receipts at gardening and building material stores, and furniture-store. There was an uptick in sales at auto dealerships, restaurants and bars as well. Notably, sales picked up at Internet retailers. Sales at online retailers gained 1.2%. In fact, online players made a significant headway throughout last year, mostly led by Amazon.com, Inc. (NASDAQ:AMZN) .

Bulk E-Commerce Sales From Amazon

Amazon accounted for 44% of online sales in 2017. But, it only adds up to 4% of total retail sales. Such a crazy number now makes analysts believe that they are in a position to acquire Target Corporation (NYSE:TGT) this year.

Despite many efforts by traditional brick-and-mortar retailers to get the bigger piece of the action, Amazon continues to dominate. The company’s strength in the e-commerce segment can be attributed to innovation in delivery and logistics, broadening of its product selection, device strategy, international expansion and the Prime membership program.

Holiday Retail Sales Rise at Best Pace Since 2011

Retailers, in the meanwhile, enjoyed some extra Christmas cheer. According to the National Retail Federation, U.S. year-end holiday retail sales during November and December increased 5.5% compared with the same period last year. NRF President and CEO Matthew Shay added that “whether shoppers shopped in-store, online or on their phones, consumers were in the mood to spend, and retailers were there to offer them good value for their money.”

Some of the largest jumps were seen in electronics and appliances. The segment climbed 7.5% and registered the strongest growth in the last 10 years. Home furniture and furnishings grew 5.1% and so did home improvement. Department stores and specialty apparel saw moderate gains, which is quite encouraging given the recent store closings. The jewelry segment also gained 5.9%, primarily driven by last-minute sales.

Factors Driving the Surge

Stronger employment and higher confidence led consumers to spend more during the holidays. Jobless rate remaining at an ultra-low level of 4.1% lifted consumer confidence to a 17-year high set in November.

Workers’ pay has also increased 2.5% from December 2016 to December 2017, up from 2.4% in the prior month. The National Employment Law Project, in fact, showed that minimum wage is poised to increase in 18 states and around 20 cities in the United States. This will reach employee wage closer to $15 an hour, which is known as “living wage.”

5 Solid Picks

Given the aforesaid positives, investing in sound retail stocks seems judicious. We have thus selected five such retailers to boost your returns. These stocks also possess a Zacks Rank #1 (Strong Buy) or 2 (Buy). The favorable Zacks Rank should help these stocks gain further the next year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wal-Mart Stores, Inc. (NYSE:WMT) operates retail stores in various formats worldwide. It operates through three segments: Walmart U.S., Walmart International, and Sams Club. Wal-Mart Stores has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 0.5% in the last 60 days. The stock, which is part of the Zacks Retail - Supermarkets industry, has given a return of 50.3% in the past year. The company’s expected earnings growth for the current and next quarters are 4.6% and 9%, respectively.

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Darden Restaurants, Inc. (NYSE:DRI) through its subsidiaries, owns and operates full-service restaurants in the United States and Canada. Darden Restaurants has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 5.2% in the last 60 days. The stock, which is part of the Zacks Retail - Restaurants industry, has given a return of 33.6% in the last one-year period. The company’s expected earnings growth for the current and next quarters are 20.5% and 16.1%, respectively.

At Home Group Inc. (NYSE:HOME) operates home decor superstores in the United States. At Home Group has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 5.3% in the last 60 days. The stock, which is part of the Zacks Retail - Home Furnishings industry, has yielded a return of more than 100% in the past year. The company’s expected earnings growth for the current and next quarters are 25% and 47.4%, respectively.

EVINE Live Inc. (NASDAQ:EVLV) operates as a multiplatform video commerce company in the United States. EVINE Live has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 1% in the last 60 days. The stock, which is part of the Zacks Internet - Commerce industry, has given a return of 11.5% in the last one-year period. The company’s expected earnings growth for the current and next quarters are 233.3% and 120%, respectively.

PetMed Express, Inc. (NASDAQ:PETS) and its subsidiaries, doing business as 1-800-PetMeds, operate as a pet pharmacy in the United States. PetMed Express has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 0.6% in the last 60 days. The stock, which is part of the Zacks Internet - Commerce industry, has given a return of more than 100% in the past year. The company’s expected earnings growth for the current and next quarters are 50% and 18.9%, respectively.

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