Retailers need to be extremely focused this holiday season to make the most of small opportunities. Moreover, they need to make all attempts to entice cautious, budget-constrained consumers into their stores as the holiday season is looking like it might be a tough season for retailers.
What is further making this holiday season challenging for retailers is the time frame - as 2013 presents only 25 days between Black Friday and Christmas as against 31 days last year. Also, retailers, who witness more traffic during weekends, will have only 4 full weekends this time around versus 5 in 2012.
Further, consumer confidence appears to have taken a hit as a result of the fiscal discord in Washington DC. The Conference Board’s Consumer Confidence Index fell drastically to 71.2 in Oct 2013 following a small dip to 80.2 in September.
However, the recent data provided by National Retail Federation (NRF), the largest retail trade association, suggests that the retailers should experience a healthy holiday season. As per NRF, consolidated sales for November and December are likely to grow 3.9% compared with 3.5% in the same period last year. Moreover, the forecast is also above the 10-year average holiday sales growth of 3.3%.
We believe retailers will leave no stone unturned to tap this holiday season. Be it the early-hour store openings, promotional events, free shipping on online purchases or heavy discounts, retailers will try all tricks to boost sales.
Further, an unemployment rate of 7.3% in Oct 2013 versus 7.9% in the year-ago period, low inflation rate and the central bank’s recent decision to keep its stimulus program of buying $85 million of bonds each month have also aided to our optimism.
Consumer spending is a primary component of the economy, and the way consumers behave during the holiday season will give a rough idea to investors about the health of the U.S. economy.
Banking on its wide spectrum, the Retail/Wholesale sector remains a lucrative investment opportunity for investors. Thus, identifying the future winners from the sector would be a prudent idea to make an investment decision.
The Future Winners in the Crowd
Picking the best stocks from the Retail/Wholesale space for one’s portfolio is a fairly simple task. One way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Zacks Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement.
For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season:
PetSmart, Inc. is a Zacks Rank #3 stock having an Earnings ESP of +1.16%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is 86 cents a share, portraying a 14.7% improvement from the prior-year period. This Phoenix, Ariz.-based specialty retailer of products, services, and solutions for pets had registered an average positive earnings surprise of 6.8% over the trailing four quarters, and has a long-term earnings expectation of 15.8%. The company is scheduled to report earnings numbers on Nov 22, 2013.
Express Inc. (EXPR - Snapshot Report) is a Zacks Rank #3 stock with an Earnings ESP of +12.0%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is pegged at 25 cents a share, reflecting an increase of 26.3% year over year. This Columbus, Ohio-based specialty retailer of men and women apparels had registered an average positive earnings surprise of 6.1% over the trailing four quarters, and has a long-term earnings expectation of 14.7%. The company is slated to report third quarter results on Nov 27, 2013.
Casey’s General Stores, Inc. (CASY - Snapshot Report) is a Zacks Rank #3 stock having an Earnings ESP of +3.54%. The current Zacks Consensus Estimate for second-quarter fiscal 2014 is $1.13 a share, portraying a 32.7% increase from the prior-year period. This Ankeny, Iowa-based convenience stores operator had registered an average positive earnings surprise of 3.2% over the trailing four quarters, and has a long-term earnings expectation of 10.4%. The company is scheduled to report its second quarter performance on Dec 9, 2013.