Rising costs slowed down retail sales in February and troubled consumers. Nonetheless, retail sales grew in February, indicating that people are willing to spend and that the sector is on track for recovery.

Retail sales had unexpectedly declined during the latter half of the year despite expectations that the holiday season would be a driver. This year, despite rising costs, sales have bounced back, which is a good sign for the economy. Given this situation, stocks likeTapestry, Inc. (TPR Quick QuoteTPR - Free Report) ,Target Corporation (TGT Quick QuoteTGT - Free Report) , Nordstrom (JWN Quick QuoteJWN - Free Report) and Casey's General Stores (CASY Quick QuoteCASY - Free Report) are likely to benefit in the near term.

Retail Sales Rise in February

The Commerce Department said on Mar 16 that retail sales grew 0.3% in February, after an upwardly revised 4.9% in January. Overall, retail sales totaled $658.1 billion in February. On a year-over-year basis, retail sales jumped 17.6% in February.

Sales were driven by a 5.3% jump in spending on gasoline, as prices continued to rise following Russia’s invasion of Ukraine. February’s rise in retail sales might look minuscule compared to January but that’s because of the rising costs, as people continued to spend wisely and save more.

However, even after soaring prices, people continued to shop across all categories. Seven of the 13 retail categories saw a rise in sales. Sales at restaurants and bars, motor vehicle dealers and hobby stores grew in February, indicating that people are once again moving out of their homes more freely as the economy continues to open further.

Retail Sector Fighting Challenges

The retail sector has had a roller-coaster ride after the economy started reopening following the COVID-19 induced lockdown two years back. Last year, sales were uneven, with the holiday season being a dampener. Things finally seem to be looking up but challenges are aplenty.

The retail sales figures were announced as the Fed hiked its key interest rate for the first time since 2018 in an effort to combat the highest level of inflation in the United States in four decades.

Rising costs, which have been a cause for concern, made people spend less in February. However, Americans managed to save a lot last year thanks to the fiscal stimulus, which encouraged spending.

Moreover, Americans are on solid ground as the unemployment rate has hit a low of 3.8%, while disposable income has been rising almost throughout the pandemic. As more people get employed, income will rise and so will purchasing power. Thus, the retail sector is likely to flourish in the near term despite challenges.

Our Choice

Given this scenario, investing in retail stocks with a strong online presence seems wise. We have chosen four stocks for you. Each of the stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nordstrom is a leading fashion specialty retailer in the United States. JWN offers an extensive selection of both branded and private-label merchandise, which are positioned in the upscale segment of the industry. Nordstrom offers high-quality apparel, shoes, cosmetics and related accessories for men, women, young adults and children through a variety of channels.

Nordstrom’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 61.8% over the past 60 days. JWN sports a Zacks Rank #1.

Tapestry is adesigner and marketer of fine accessories and gifts for women and men in the United States and internationally. TPR offers lifestyle products, including handbags, women’s and men’s accessories, footwear, jewelry, seasonal apparel collections, sunwear, travel bags, fragrance and watches. 

Tapestry reported stronger-than-expected second-quarter fiscal 2022 earnings, thanks to robust demand and strong customer engagement. TPR posted second-quarter adjusted earnings of $1.33 per share, beating the Zacks Consensus Estimate of $1.19.

Tapestry’s expected earnings growth rate for the current year is 22.9%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. TPR has a Zacks Rank #2.

Casey's General Stores 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 offers a variety of food selection (including freshly prepared foods such as pizza, donuts and sandwiches), beverages, tobacco and nicotine products, health and beauty aids, school supplies, housewares, pet supplies, and others.

Casey's General Stores’ expected earnings growth rate for the current year is 5.4%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. CASY has a Zacks Rank #2.

Target Corporation has evolved from just being a pure brick-&-mortar retailer to an omni-channel entity. TGT has been investing in technologies, improving websites and mobile apps and modernizing the supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players. Target Corporation provides an array of goods ranging from household essentials and electronics to toys and apparel for men, women and kids.

Target Corporation’s expected earnings growth rate for the current year is 6.7%. The Zacks Consensus Estimate for current-year earnings has improved 9.6% over the past 60 days. TGT has a Zacks Rank #2.