Sales at U.S. retailers picked up in August primarily due to sales at gas stations and as Americans splurged on apparel and dined out more. This calls for investing in retailers such as American Eagle Outfitters AEO, Abercrombie & Fitch ANF, Urban Outfitters URBN, Carrols Restaurant Group TAST and First Watch Restaurant Group FWRG, which are positioned to gain even more.

Retail Sales Increase in August, Beat Expectations

The Commerce Department reported that sales at U.S. retailers increased 0.6% in August from July, way more than analysts’ estimate of a meager rise of 0.1%. Retail sales grew last month at a slightly faster pace than July’s revised reading of a gain of 0.5% and marked the fifth successive monthly increase in sales at retail outlets.

Last month, retail sales increased 2.5% year over year. Additionally, retail sales advanced 2.2% from June through August compared with the year-ago period. Retail sales, in reality, were broad-based as consumers continued to splurge on varied products despite several interest rate hikes initiated by the Federal Reserve in recent times.

Sales at Internet retailers were mostly flat in August after gaining considerably in July, banking on the Amazon Prime Day sales. But auto sales rose a solid 0.3% in August, while sales at bars and restaurants also edged up 0.3%.

Clothing and accessories stores saw sales increase by 0.9%. Spending at gas stations, meanwhile, spiked 5.2% in August. Per AAA, the national average price of gasoline was $3.86 a gallon on Sep 14, the highest in 10 months.

What’s Driving Retail Sales?

It’s the increase in receipts at gas stations that helped overall retail sales improve. Americans had to spend on fuel due to the surge in oil prices.

Optimism about an increase in demand for oil amid tighter supply through production cuts lifted the price of oil. The Organization of the Petroleum Exporting Countries expects the demand for oil to remain robust this year as major oil import economies are expanding. Conversely, foremost oil producers like Russia and Saudi Arabia are willing to extend output cuts till the end of 2023.

Nonetheless, retail sales also improved as Americans felt that the U.S. economy was on a strong footing, and they doled out cash as they felt secure about their job prospects.

The Big Gainers

Given the positives, it’s sensible for shrewd investors to bet on retailers who directly benefit from this heartening economic backdrop and an uptick in retail sales.

These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also have a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear for men and women. AEO currently has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 21.8% over the past 60 days. The company’s expected earnings growth for the current year is 26.8%.

Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women and kids. ANF currently has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 109.6% over the past 60 days. The company’s expected earnings growth for the current year is 1,644%.

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories. URBN currently has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 17.5% over the past 60 days. The company’s expected earnings growth for the current year is 84.6%.

Carrols Restaurant Group is the largest Burger King franchisee in the United States. TAST currently has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 1,800% over the past 60 days. The company’s expected earnings growth for the current year is 124.3%.

First Watch Restaurant Group is a daytime dining restaurant concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. FWRG currently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 20% over the past 60 days. The company’s expected earnings growth for the current year is 227.3%.
Abercrombie & Fitch Company (ANF): Free Stock Analysis Report

American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report

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

Carrols Restaurant Group, Inc. (TAST): Free Stock Analysis Report

First Watch Restaurant Group, Inc. (FWRG): Free Stock Analysis Report

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