3 stocks riding the rise in retail trade

Retailers feeling consumer spending increases.

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For investors watching the retail space, the trend is your friend.

We’ve seen the improvement of some retailers in their half-year reports, and shareholders hope an increase in consumer spending can drive the economy upwards.

Now, data from the Australian Bureau of Statistics (ABS) has come out, showing January retail trade grew by 0.7% in trend estimates. This matches similar monthly gains since September. Seasonally adjusted, some of the biggest estimated gains were in furniture and household goods, department stores, pharmaceuticals, cosmetics and recreational goods.

From early 2012, consumer spending has been on the rise and now we are seeing definite signs of it in retail trade.

Harvey Norman Holdings Ltd (ASX: HVN), the furniture, bedding and electronics retailer, would benefit from this rise. It reported a $29.5 million rise in half-year net profit to $111.4 million and a 4.9% like-for-like sales increase in global sales.

Investors should also look at furniture specialty retailer Nick Scali Limited (ASX: NCK), which has been rising in earnings and share price since 2012. It operates 33 Nick Scali stores along the eastern coast and five Sofas2Go stores in Sydney and Melbourne.

Sales for the half-year ending in December were up 14%, and NPAT climbed 22% to a record $7.9 million.

The rising housing market gives them an extra kicker because home owners commonly buy household items when they purchase a home, or spruce up an existing home to sell. As experienced investors know, housing market growth can have a knock-on effect for other parts of the economy.

For department stores, there was a lot of worry about sagging sales and stronger competition from online only retailers, but David Jones Limited (ASX: DJS) achieved a 4.7% increase in sales for the second quarter of FY2014, up 2.1% in like-for-like sales. Online sales also rose thanks to the development of the company’s multi-channel sales program, improving the online retail experience for shoppers, and linking up in-store sales.

Although department stores are still seen as more costly high-end retailers, rising consumer spending will flow through to them as customers open their wallets more. Its share price hit a new 52-week high in late February.

Foolish takeaway

Investors should follow the trend and the flow of money as they look for investments. The movements we see in retail and housing are in the early stages where people are still not sure if the economy is growing as one.

Watch for sales growth and keep these three on your watchlist.

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