After a strong start to 2017, U.S. retail sales nosedived for the second month in a row in March. Sales dropped 0.2% sequentially in March, following a downwardly revised 0.3% decline in February. Previously, a 0.1% increase was reported in February sales. March data marked the first successive two-month drop in over two years, as per trading economics. Economists expected March numbers to slide only 0.1%.
Reduced buying of motor vehicles (1.2%) and expenditure in gas stations (down 1%) were behind this slide. Basically, a sharp drop in crude prices last month weighed on retail sales and inflation. Six out of the 13 key categories registered a drop in sales. Building material outlets, sporting goods, furniture stores, and food and drinking places also saw a decline in purchases.
However, electronics and appliances stores (2.6%), food and beverage stores (0.5%), health and personal care stores (0.1%), clothing and clothing accessories (1%) and general merchandise stores (0.3%) recorded gains.
Analysts attributed this downside to the delayed disbursement of a tax refund by the government. Weather glitches in March like Winter Storm Stella that hit Northeast U.S. may also have hurt some portion of sales.
Overall, this scenario triggers concerns over the GDP reading of Q1, especially since the U.S. economy generates a considerable portion of the GDP from consumer spending. The Atlanta Fed already slashed its first-quarter GDP estimate by one-tenth of a percentage point to 0.5%, "which would be the weakest performance in three years," as per Reuters.
Are There Any Silver Lining?
Despite the unimpressive headline numbers, there are some segments that can prove to be hidden gems. Electronics and appliances store sales registered their largest jump since June 2015, according to Reuters.
Purchases at clothing stores jumped the most in a year - a nice surprise when brick-and-mortar retailing is grappling with declining footfall and rising competition from online stores. Notably, several brick-and-mortar retailers have been resorting to store closures lately.
ETFs & Stocks Likely to Gain
Though the health of the retail sector is not sound with the Zacks Sector Rank being the lowest, investors could take a look at the below-mentioned ETFs and stocks for likely gains.
SPDR S&P Retail ETF (NYSEARCA:XRT)
This product tracks the S&P Retail Select Industry Index, holding 103 securities in its basket with none accounting for more than 1.55% of assets. Apparel retail takes the top spot at about one-fourth share while Internet retail and specialty stores round off the next two spots with a double-digit allocation each. Since clothing and clothing accessories registered decent growth last month, one can take a look at this fund.
First Trust Nasdaq Retail ETF (NASDAQ:FTXD)
The fund follows the Nasdaq US Smart Retail Index and holds 50 stocks in its basket. It is moderately concentrated across components, with each firm holding less than 8.4% of assets. While specialty retailers and broadline retailers make up for a bigger chunk at 26.3% and 23.1%, respectively, apparel retailers take about 17.5% of the fund.
The Children's Place Inc. (NASDAQ:PLCE)
It is a specialty retailer of apparel and accessories for children from newborns to 12 years of age. The stock has a VGM (Value-Growth-Momentum) Score of 'A.' It sports a Zacks Rank #1 (Strong Buy).
Best Buy Co. Inc. (NYSE:BBY)
The company falls in the consumer electronics segment - a bright spot on March retail sales scorecard. It sells personal computers and other home office products, consumer electronics, entertainment software, major appliances and related accessories principally through its retail stores. This Zacks Rank #1 stock also has a VGM score of 'A'.