We are about to bid adieu to an eventful year marked by trade war tensions, geopolitical issues, hurricanes, interest rate hikes and tax reforms. An expected fourth interest rate hike by the Fed might result in a slowdown in the U.S. economy. This does not however deride a robust consumer spending environment that has mostly contributed to the GDP growth in the United States.
A positive consumer outlook has proven beneficial for the Retail-Wholesalesector throughout 2018, with strong closing remarks in the cards as retailers had a solid start to the holiday season. The initial numbers for Black Friday and Cyber Monday are impressive, with Christmas shopping likely to add more cheer.
Per the latest Earnings Preview, in the fourth quarter of 2018, the Retail sector is expected to witness top- and bottom-line growth of 4.8% and 18.9%, respectively, on a year-over-year basis. Also, margins for the space are projected to improve 0.6% despite elevated operating expenses across the sector. Meanwhile, higher cost of investments toward enhancing omni-channel capabilities should impede margins.
In a year’s time, Retail stocks have outperformed the broader market. The sector has lost 0.7%, narrower than the Zacks S&P 500 composite’s corresponding decline of 3.1%.
Why There's Growth Ahead for the Sector
Transformation for the Good: The Retail space has transformed significantly over the past few years, where the focus has shifted to omni-channel with online and brick-and-mortar going hand in hand. In fact, the growing popularity of online shopping was clearly visible in the recent holiday sales outcomes, where the digital channel captured a major share. Further, retailers continue to safeguard the relevance of physical stores by equipping these with advanced feats, in addition to a modern decor.
Other Key Catalysts: Players in this space are well poised to gain from merchandise and brand enhancements, inventory-management initiatives, supply-chain optimization and loyalty programs as well as accelerating shipping and delivery capabilities. Favorable product mix, alliances and buyouts, constant innovation and marketing initiatives are likely to help retailers tap growth opportunities. While higher cost of investments may keep margins under pressure in the near term, cost-containment efforts should offset the estimated impact on margins.
Given these encouraging facets, we are optimistic about the sector’s overall performance going forward.
5 Winning Stocks to Watch in 2019
Here we have zeroed in on five retail stocks for a winning portfolio using our Zacks Stock Screener. These stocks are poised to grow based on solid fundamentals coupled with a favorable Zacks Rank of #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B.
Additionally, these companies have outpaced the broader sector and S&P 500 index in a year, registering growth of 20% or more. Further, an impressive earnings surprise history and robust future plans confirm the upward run of these stocks in 2019.
Fossil Group, Inc. is mostly benefiting from continued growth in its wearables category. Further, this Richardson, TX-based designer of fashion accessories is keen on widening its digital platform and remains optimistic about its expansion plans in this category to bolster online sales. Notably, the company has outpaced the earnings estimates in the trailing six quarters. Moreover, the stock has surged a whopping 134.1% in the past year. Fossil has a Zacks Rank #1 and VGM Score of B.
Restoration Hardware Holdings Inc. is the leading retailer in the home furnishings. The company has been gaining from efforts to improve profit margins as well as creating a new and differentiating shopping experience with the addition of hospitality in new Full Line Design Galleries. The company’s efforts to redesign its supply chain network and rationalize product offerings are expected to boost growth. Furthermore, Restoration Hardware has a Zacks Rank #1 and a VGM Score of A, which clearly demonstrates its inherent potential. The company has delivered earnings beat in five of the trailing six quarters. The stock has rallied 22.1% in a year’s time.
Shoe Carnival, Inc., the major footwear retailer in the United States, is also a solid bet given its Zacks Rank of 1 and a VGM Score of A. The company has delivered positive earnings surprise in the last six quarters. Further, its expansion across all regions and product categories has been fueling comps growth. Also, strength in its business model which keeps up pace with the evolving trends in athletic and non-athletic footwear categories is an added positive. Shares of the company have advanced 21.7% over the past year.
Macy's, Inc., one of the leading department store retailers, is benefiting from various initiatives such as Macy’s Backstage off-price business, the launch of Bronze Program, Growth50 stores and expansion of Bluemercury. This Cincinnati, OH-based company has also been integrating operations as well as developing omni-channel capabilities and online order fulfillment centers. The stock has climbed 28.3% in a year, mostly attributed to its trend of beating earnings estimates for six consecutive quarters. Furthermore, the company has a Zacks Rank #2 and a VGM Score of B.
Finally, Tractor Supply Company the major lifestyle rural retailer is seeing continued momentum in its “ONETractor” initiative. This strategy is aimed at connecting store and online shopping to offer consumers a seamless shopping experience. Moreover, the company is poised well to benefit from its ‘Buy Online Pick Up in Store’ program and expansion of the Neighbor’s Club customer rewards program. It carries a Zacks Rank #2 and a VGM Score of B. The company has surpassed earnings estimates in four of the last five quarters. In a year, shares of this Brentwood, TN-based company have advanced 20%.