Inflation climbed in August and remains a major concern, which led the Federal Reserve to finally hike interest rates for the first time in three years. However, despite continued inflationary pressures, the retail sector has performed well.
Consumers continued to spend aggressively, which saw retail sales grow at a solid pace in August. Given this situation, it would be ideal to invest in retail stocks with a strong online presence. We have selected five stocks, namely, Five Below, Inc. FIVE, Dollar Tree, Inc. DLTR, Kohl's Corporation KSS, Target Corporation TGT and The TJX Companies, Inc. TJX.
Retail Sales Grow
Retail sales grew 1.2% in August, recording the largest increase since March after declining a revised 0.5% in July, the Commerce Department reported last week. The decline in July was the first in nine months, indicating the robust growth for the sector this year.
The jump in August retail sales also surpassed analysts’ expectations of a rise of 0.8%. Year over year, retail sales grew 0.6%. Although higher gasoline prices were partially responsible for the rise in retail sales, consumers also continued to spend aggressively on a range of goods.
Consumers have continued to spend at a solid pace despite high inflation as producer and consumer prices jumped in August. Households have been saving less and spending more. The rise in sales in August was to a large extent led by a 2.6% jump in receipts at non-store retailers.
Sales at vehicles and parts dealers climbed 0.6%. Also, back-to-school purchases boosted receipts at clothing stores by 0.7%. Sales at food services and drinking place, the only service category in the retail sales report, jumped a solid 1.2%. Retail sales excluding automobiles, gasoline, building materials and food services rose 1.4% in August, the largest increase since September 2024, after declining 0.4% in July.
The retail sales report comes just days after the Federal Reserve hiked interest rates by a quarter percentage point in its bid to combat sky-high inflation.
However, the rise in retail sales shows the economy’s resilience. Surging oil prices have played a major role in pushing inflation higher, as tensions continue in the Middle East. However, inflation is likely to ease once oil prices stabilize. This is likely to boost the retail sector in the near term.
5 Retail Stocks With Upside
Five Below, Inc
Five Below, Inc. is a specialty value chain retailer that provides a wide range of premium quality and trendy merchandise for $5 or below. FIVE mainly targets teenagers or pre-teen shoppers for its products, which include certain brands and licensed merchandise. Notably, these products belong to categories such as Style, Room, Sports, Tech, Create, Party, Candy and Now.
Five Below’s expected earnings growth rate for the current year is 57.6%. The Zacks Consensus Estimate for current-year earnings has improved 15.2% over the past 60 days. FIVE presently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dollar Tree
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 34.6%. The Zacks Consensus Estimate for Dollar Tree’s current-year earnings has improved 10.6% over the past 60 days. DLTR has a Zacks Rank #2 (Buy).
Kohl's Corporation
Kohl's Corporation offers moderately priced apparel, footwear and accessories for women, men and children, along with beauty and home products. KSS targets value-oriented, moderate-income households and combines national brands with proprietary and exclusive brands.
Kohl's Corporation’s expected earnings growth rate for the current year is 24.7%. The Zacks Consensus Estimate for Dollar Tree’s current-year earnings has improved 48.5% over the past 60 days. KSS has a Zacks Rank #1.
Target Corporation
Target Corporation has evolved from being a pure brick-and-mortar retailer to an omni-channel entity. TGT has been investing in technologies, improving websites and mobile apps, and modernizing the supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players.
Target Corporation’s expected earnings growth rate for the current year is 37.8%. The Zacks Consensus Estimate for current-year earnings has improved 25.1% over the past 60 days. Target currently carries a Zacks Rank #2.
The TJX Companies
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 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 10.4%. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the past 60 days. TJX presently has a Zacks Rank #2.
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Target Corporation (TGT): Free Stock Analysis Report
The TJX Companies, Inc. (TJX): Free Stock Analysis Report
Kohl's Corporation (KSS): Free Stock Analysis Report
Dollar Tree, Inc. (DLTR): Free Stock Analysis Report
Five Below, Inc. (FIVE): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).