Zacks Industry Outlook Highlights: Costco Wholesale, Zumiez, L Brands, Buckle And Fred's

For Immediate Release

Chicago, IL – July 11, 2017 – Today, Zacks Equity Research discusses the Industry: Retail, Part 1, including Costco Wholesale Corp. (NASDAQ:COST – Free Report ), Zumiez Inc. (NASDAQ: ZUMZ – Free Report ), L Brands Inc (NYSE:LB). (NYSE: LB – Free Report ), Buckle Inc. (NYSE: BKE – Free Report ) and Fred's Inc. (NASDAQ: FRED – Free Report ).

Industry: Retail, Part 1

Link: https://www.zacks.com/commentary/120862/retail-industry-stock-outlook---july-2017

Retailing involves buying large quantities of goods and selling them in smaller measures for a profit. The health of the retail industry is an important economic indicator as it is linked directly to consumers and their propensity to spend. Consumer spending holds the key to the well-being of the U.S. market as it accounts for more than two-thirds of economic activity.

The link between consumer spending and the retail industry becomes more relevant as retail sales attract approximately 30% of total consumer spending in the U.S. Also, the retail industry ranks among the top U.S. industries and employs an enormous workforce, thereby deciding the health of the job market.

Before jumping on to the trends in retail, here’s a peek into the key economic indicators, which suggest where the market is heading.

On the whole, the U.S. economy seems to be in good shape. Per the ‘third’ estimate released by the Bureau of Economic Analysis on Jun 29, 2017, the U.S. economy expanded at an annual rate of 1.4% in the first quarter. This marks an increase from the ‘second’ estimate of 1.2% but a downside from 2.1% growth in the fourth quarter of 2016.

While GDP growth in the first quarter was on the low side, many key parts of the economy have consistently been on the growth trajectory. Steady labor and housing markets stand witness to this. Wages have been improving as well. This is propping up the household sector’s buying power, which is showing up in revived consumer spending and consumer confidence data.

Evidently, consumer spending made a comeback in June, rising 1.1%. While this marked the weakest reading since second quarter 2013, it nearly doubled from a 0.6% rise in May. Consumer confidence improved moderately during the month of June indicating that the economy is on a recovery path after a dismal show in May. According to the recent Conference Board data, the Consumer Confidence Index rose to 118.9 in June from May’s reading of 117.6. We expect this positive sentiment to translate into higher consumer spending that may help revive sales.

Changing Retail Landscape

The Retail sector fully lives up to the saying, “The only thing that is constant is change.” This landscape has evolved from a marketplace where goods are bought and sold to a forum with multiple avenues to engage customers. With the advent of technology, the face of retail has changed from small/big retail outlets to omni-channel stores, where one can check products/prices online and buy in stores, and vice versa. Today, the success mantra in retail hovers around finding new ways to market their products.

To put it simply, the retail sector is on transformation mode – with store-based retailers now ditching their traditional stores and embracing omni-channel concepts, which provide a more seamless shopping experience both online and in-stores. The result is, customers can use computers, smartphones or tablets for shopping or visit a store if they want to.

Parallel to this shifting retail landscape, the industry is facing major challenges from a strong U.S. dollar, volatile commodity costs and global uncertainty. The volatility in the U.S. dollar has been hurting retailers with worldwide operations. Also, the competitive situation continues to worsen as industry players vie for the top spot, focusing on speedy deliveries and enhanced customer experience, while battling margin pressures.

Key Retail Metrics

The key data in retail industry analysis is comparable-store sales (comps) as they exclude sales at newly opened and closed stores. We observe that sales data for the month of June was more or less negative, as the majority of retailers that report monthly comps faltered. With many retailers having discounted the practice of reporting monthly comps, we only have a six of them providing this key metric for June.

The list of gainers in June had warehouse retailerCostco Wholesale Corp. (NASDAQ: COST – Free Report ) on the top. The company posted a 6% rise in comps, while total sales rose 7% to $12.17 billion. Excluding the impact of foreign currency fluctuations and gasoline prices, Costco’s comps for the month under review rose 6.5%.

Right behind was Washington-based retailer of sports-related teen apparelZumiez Inc. (NASDAQ: ZUMZ – Free Report ) that reported a 5.3% increase in comps, with sales improving 8.4% to $72.2 million from the year-ago period. Following the better-than-expected sales results for June, the company raised its guidance for second-quarter fiscal 2017.

This was followed by specialty retailer of women’s intimate and other apparel, beauty and personal care products, L Brands Inc. (NYSE:LB – Free Report ). The company posted a comps decline of 9% while sales dropped 6% to $1.213 billion. This marked the company’s seventh straight month of comps decline. Further, the company expects comps to decline by mid-single-digits in the month of July.

Going down the line, The Buckle Inc. (NYSE: BKE – Free Report ) continued with sluggish comps for the sixth straight time, reporting a 5.8% decline in comps and a 5.9% fall in net sales to $73.6 million for June. Placed further down in the list is discount store operatorFred's Inc. (NASDAQ: FRED – Free Report ) which saw a 1.6% fall in comps for June. Fred's net sales slipped 5.3% to $197.5 million.

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