Retail sector is hogging all the attention, and this time for good reasons. For the time being, the expression "retail apocalypse” appears to be a thing of past. The sector has certainly been facing the brunt of heightened online competition, lower footfall and changing consumer spending patterns but of late the tables are turning in favor of the retailers. Stocks once bogged down by tough environment are now suddenly climbing the charts.
The first and foremost reason for the same is the latest tax reform that is likely to come into shape, following the approval of the Senate. The tax code once implemented is likely to lower the burden of retailers, who now topped the list with a corporate tax rate of as much as 35%. President Trump has been recommending a tax rate of as much as 20% and pushing hard to pass on the benefits to companies who generate all or most part of revenues in the United States.
The news was enough to drive the retail stocks. As a result, shares of Macy’s M, Gap GPS, Target TGT, Kohl's KSS and Best Buy BBY gained 6.7%, 6.6%, 5.1%, 4.4% and 3.7%, respectively, yesterday.
Certainly, the “Trump Factor” is ruling the U.S. stock market but it is also the attractive holiday season deals that are exciting consumers. The five-day holiday period starting from Thanksgiving, followed by Black Friday, Small Business Saturday to Cyber Monday, marked an auspicious start to the holiday-shopping season. Retailers are cashing in on customers preferring to shop from the comfort of their homes, mostly online or through their mobile phones.
A Stellar Start to the Season
Online sales on Thanksgiving Day surged 18.3% to $2.87 billion, per Adobe Analytics. Bargain hunters bought $5.03 billion worth of products online on Black Friday, an increase of 16.9% from last year. The euphoria did not end here, as the shopping frenzy was palpable on Cyber Monday when online sales soared 16.8% to $6.59 billion.
A blockbuster Thanksgiving weekend and buoyant Cyber Monday indicate that the season is turning out to be a bonanza for retailers. Per National Retail Federation (“NRF”), approximately 174 million customers shopped in stores and online during this weekend. The trade group estimates that an American spent about an average of $335.47 during the five-day period.
Further, shopping through mobile devices was the most prominent trend that developed during this year’s Black Friday and Cyber Monday shopping period, as nearly 63% of customers used their smart phones to make buying decisions, while 29% used it to actually buy goods.
This indeed points to a blissful shopping season for retailers. With Christmas falling on Monday and 32 days after Thanksgiving, shoppers are getting one extra day compared with last year and an extended weekend to do last minute purchasing.
Wrapping Up
Improving labor market, rising disposable income and elevated consumer sentiment have ushered confidence in retailers about a robust holiday season. From Amazon AMZN to Wal-Mart WMT retailers are gearing up for the busiest part of the year. With digital transformation in shopping they are fast adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores.
Overall, NRF projects a 3.6-4% rise in November and December sales (excluding autos, gas and restaurant sales) to $678.75-$682 billion, up from $655.8 billion last year and better than the five-year average sales growth of 3.5%. Data compiled by eMarketer forecasts 3.1% jump in holiday sales (November and December) to $923.15 billion, while retail e-commerce holiday season sales are anticipated to rise 16.6%.
As you can see, there are plenty of reasons to be optimistic about the retail sector but what about investing in the space right now? Out of the stocks mentioned above, Wal-Mart carries a Zacks Rank #2 (Buy), while Amazon, Target, Macy’s, Best Buy, Kohl's and Gap carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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