The U.S. retail sector has been resilient amid growing price pressures. Although sales have been slow, the sector has been growing at a steady pace as consumers continue to spend.

According to the latest report from the Commerce Department, retail sales increased 0.2% in June after rising 0.5% in May. Slowing inflation has raised hopes that the Fed might finally end its interest rate hikes. This is likely to help the retail sector in the near term, as lower interest rates should boost purchasing power.

Given this scenario, stocks like Urban Outfitters, Inc. URBN, Abercrombie & Fitch Co. ANF, Casey’s General Stores, Inc. CASY and The Lovesac Company LOVE are likely to benefit.

Retail Sales Grow

The retail sector continued its steady growth in June as price pressures somewhat eased from the earlier highs. Spending remained strong last month, with sales at auto dealerships increasing 0.3%.

Online sales increased 1.9%, the highest in the past six months. Furniture sales rose 1.4%, while electronics and appliances sales grew 1.1%. Apparel sales also rose a solid 0.6%.

This came as fresh economic data released over the past week hinted at easing inflation, with both the consumer price index (CPI) and producer price index (PPI) coming up with impressive readings.

The CPI increased just 0.2% month over in June. On a year-over-year basis, CPI rose 3% in June after increasing 4% in May. This is the lowest level since March 2021.

Also, PPI rose a modest 0.1% year over year in June.

The Fed has increased interest rates by 500 basis points since March 2022, which has been taking its toll on the retail sector as consumers have been spending cautiously by cutting down on discretionary items.

The Fed finally decided to pause its interest rate hike in June for the first time in more than a year. However, the central bank said that two more rate hikes of 25 basis points each would be required this year. This may have left consumers concerned, which made them shop consciously in June.

However, slowing inflation has also raised hopes that the Fed may finally end its monetary tightening cycle. Lower interest rates will allow consumers to spend more freely, which bodes well for the retail sector.

Also, personal income has steadily increased, which has seen spending remain resilient amid rising costs.

Our Choices

Urban Outfitters, Inc. is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home decor and gift products. URBN merchandises are generally sold directly to consumers through stores, catalogs, call centers and e-commerce platforms. Urban Outfitters has operations in the United States, Canada and Europe.

Urban Outfitters’ expected earnings growth rate for the current year is 57.1%. The Zacks Consensus Estimate for current-year earnings has improved 11.8% over the past 60 days. URBN currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Co. operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids through a network of approximately 850 stores across North America, Europe, Asia and the Middle East. ANF’s product portfolio includes knit and woven shirts, graphic T-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women and kids, under the Abercrombie & Fitch, abercrombie kids and Hollister brands.

Abercrombie & Fitch’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 50% over the past 60 days. ANF currently sports a Zacks Rank #1.

Casey’s General Stores, Inc. operates convenience stores under the Casey’s and Casey’s General Store names in 16 Midwestern states, mainly Iowa, Missouri and Illinois. CASY also operates two stores under the name “Tobacco City,” selling primarily tobacco and nicotine products, one liquor store and one grocery store.

Casey’s General Stores’ expected earnings growth rate for next year is 8.9%. Shares of CASY have gained 6.3% in the past 30 days. CASY currently carries a Zacks Rank #2 (Buy).

The Lovesac Company retails home furnishing products. LOVE offers alternative furniture stores, sectionals, bean bags, bean bag chairs as well as other accessories such as blankets, footsacs and throw pillows.

The Lovesac Company’s expected earnings growth rate for the current year is 6.2%. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the past 60 days. LOVE presently has a Zacks Rank #2.
Abercrombie & Fitch Company (ANF): Free Stock Analysis Report

Urban Outfitters, Inc. (URBN): Free Stock Analysis Report

Casey’s General Stores, Inc. (CASY): Free Stock Analysis Report

The Lovesac Company (LOVE): Free Stock Analysis Report

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