Retail's Good Rank

In the midst of an ongoing recession, Retail-Wholesale is one of the top-ranked sectors. Though this sounds paradoxical, there are 3 reasons that justify this.

The first has to do with timing. Many retailers operate on a February-January calendar year, which means they report earnings later than most companies.

To the extent that analysts revise estimates higher in response to earnings reports, those late reporters receive a better Zacks Rank. The Zacks Rank considers changes made to earnings estimates over both the last 60-90 days and over the last 30 days.

Secondly, as Rob Plaza discussed yesterday, expectations were overly pessimistic, making it easy for some companies within the retail sector to clear the hurdle by a seemingly wide margin.

Finally, there were a few companies in the sector with good earnings reports.

Economy Helping Auto Part Sales

AutoZone (AZO) is a good example. Yesterday, shares of the auto parts retailer soared after the company reported bullish results.

Fiscal second-quarter earnings totaled $2.03, 18 cents above expectations. Net sales reached $1.4 billion, aided by a 6% jump in same-store sales.

The company is benefiting from the decline in car sales. Consumers are keeping their cars longer and, as a result, are spending on maintenance. (Afterall, it's hard to get a job if you can't make it to the interview.)

The stock had soared by more than 50% from its November lows prior to the earnings report, so there was not much room for error. Yet, AZO performed and was rewarded with a new 52-week high yesterday, making it a Zacks Rank top performer.

AutoZone's positive surprised followed good earnings reports from 2 of its competitors, Advance Auto Parts (AAP) and O'Reilly Automotive, Inc. (ORLY). AZO, AAP and ORLY are Zacks #2 Rank ("buy") stocks classified in Retail/Wholesale-Auto Parts.

Video Games Still Selling

Another retailer that has thrived in the face of the recession is GameStop Corporation (GME).

The company recently revised its fourth-quarter guidance to the high-end of the previous range. The world's largest video game reseller expects earnings to have totaled between $1.33 and $1.34 per share. Same-store sale are estimated to have risen by 9.6%.

This year, GME thinks it can achieve comparable same-store sales growth between 4% and 6%, which would be impressive given the maturity of the current gaming console systems.

Though the company did not provide an EPS projection, half of the 16 covering brokerage analysts raised their fiscal 2010 forecasts in response. The consensus earnings estimate now calls for fiscal 2010 profits to total $2.83 per share, which would be an 18% increase over fiscal 2009.

GameStop is scheduled to report in mid-March.

GME is a Zacks #2 Rank stock classified in Retail-Consumer Electronics.

Restaurants Not As Bad As Feared

On the other hand, some companies within the retail sector simply have fared better than analysts feared. This was the case with Cracker Barrel Old Country Store, Inc. (CBRL).

The chain earned 81 cents during its fiscal second-quarter, 6 cents more than brokerage analysts had projected. Though that sounds good, revenues did decline. Same-store restaurant sales were 1.5% lower and same-store retail sales contracted 7%.

CBRL's guidance, however, was good, all things considered. The company reiterated its fiscal 2009 guidance for earnings of $2.65-$3.00 per share.

This was important because analysts had been lowering their full-year projections prior to the release of earnings. During the past few weeks, analysts have reversed course, and the consensus earnings estimate has risen by 12 cents to $2.68 per share.

Brokerage analysts have also recently raised their full-year profit forecasts on Papa John's International, Inc. (PZZA) and Texas Roadhouse, Inc. (TXRH).

CBRL is Zacks #1 Rank ("strong buy") stock, whereas PZZA and TXRH are Zacks #2 Rank stocks. All 3 are classified in Retail-Restaurants.

The Zacks Rank is a quantitative short-term indicator designed to determine a stock's relative performance over a period of 1 to 3 months.

Zacks Premium and Zacks Elite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

Read the full analyst report on TXRH

Read the full analyst report on AZO

Read the full analyst report on ORLY

Read the full analyst report on CBRL

Read the full analyst report on GME