U.S. retail sales rebounded significantly in July, offering a much-needed boost after a decline in June and a challenging period for most of the year. Despite ongoing price pressures, inflation has shown a substantial decrease in recent months, empowering consumers to spend more freely.
According to the Commerce Department, retail sales grew by a robust 1% in July, exceeding the anticipated rise of 0.3%. This followed a 0.2% drop in June. Excluding gasoline, food, building materials, and automobiles, retail sales increased by 0.3% in July, building on a 0.9% increase in June. On a year-over-year basis, retail sales jumped by 2.7% in the previous month, with total sales from May through July advancing 2.4% compared to the same period last year.
The July surge was driven by a substantial 3.6% increase in sales at motor vehicles and auto parts dealers. Electronics and appliance stores also experienced a 1.6% rise in sales during July. Food and beverage outlets witnessed a 0.9% sales growth. Online sales, significantly boosted by Amazon.com, Inc.’s Prime Day, increased by 0.2% in July, following a 2.2% increase in June. Back-to-school shopping also contributed positively to overall retail sales.
This resilient consumer spending has alleviated concerns about a possible recession, which emerged earlier this month after a disappointing jobs report and a spike in the unemployment rate. Inflation has been steadily decreasing over the past quarter, with the consumer price index (CPI) showing only a marginal increase in July. Year-over-year, the CPI rose 2.9% in July, down from June’s 3% increase and marking the lowest rate since March 2021.
The combination of a strong retail sales report and softer inflation data has fueled optimism that the Federal Reserve might finally initiate rate cuts in September. Lower interest rates would positively impact the retail sector and the broader economy, providing consumers with more purchasing power.
This favorable scenario has led analysts to identify four retail stocks with promising potential for 2024:
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Boot Barn Holdings, Inc. (BOOT)
: Operating as a lifestyle retail chain focused on western and work-related footwear, apparel, and accessories. BOOT’s expected earnings growth rate for the current year is 8.9%, and the Zacks Consensus Estimate for current-year earnings has improved by 9.5% over the past 60 days. BOOT currently holds a Zacks Rank #1 (Strong Buy).*
American Eagle Outfitters, Inc. (AEO)
: A specialty retailer of casual apparel, accessories, and footwear for young adults. AEO’s expected earnings growth rate for the current year is 17.1%, and the Zacks Consensus Estimate for current-year earnings has improved by 1.7% over the past 60 days. AEO has a Zacks Rank #2 (Buy).*
eBay Inc. (EBAY)
: An online shopping platform that provides sellers with tools to build online store formats, facilitating convenient browsing for customers. eBay’s expected earnings growth rate for the current year is 13.2%, and the Zacks Consensus Estimate for current-year earnings has improved by 2.1% over the past 60 days. EBAY currently carries a Zacks Rank #2 (Buy).*
The Gap, Inc. (GPS)
: A leading international specialty retailer offering a wide range of clothing, accessories, and personal care products under various brands. The Gap’s expected earnings growth rate for the current year is 24.5%, and the Zacks Consensus Estimate for current-year earnings has improved by 2.3% over the past 60 days. GPS currently holds a Zacks Rank #2 (Buy).These stocks have witnessed positive earnings estimate revisions in the recent past and are expected to perform well in the coming year.
