In spite of pandemic-induced challenges, the Retail – Wholesale sector is likely to reflect all-around strength this earnings season, thanks to stepped-up vaccinations and resumption of business activities. Well, pent-up savings, stimulus measures, and eagerness among consumers to venture out, shop and dine should have helped keep the cash register ringing. Undoubtedly, a reviving economy, rebounding labor market and improving health situation have instilled a sense of confidence among consumers.

Per the Commerce Department, U.S. retail and food services sales grew 13.9% year over year during the month of September 2021. This followed an increase of 15.4% in August from the prior-year period. Demand for big-ticket items and goods was healthy. Restaurants and bars, the only service category included in the retail sales data, saw sales soaring. Spending across food services & drinking places was up 29.5% and 32.3% year over year in the months of September and August, respectively.

Factors to Consider

The reporting cycle is expected to reflect gains from constant omni-channel initiatives, brand introductions, store expansion and remodeling, and efforts to enhance delivery services. However, we note that industry participants that had gained amid the pandemic-led increased at-home trend are likely to have witnessed some pullback in demand. Again, operating limitations in certain geographies due to the pandemic may have hurt sales to an extent.

Nonetheless, keeping in mind consumers’ preferences retailers have been replenishing shelves with in-demand merchandise. Companies have been emphasizing on membership programs, upgradation of store technology, shopping via mobile app and last mile delivery solutions. Expedited delivery services like doorstep delivery, curbside pickup or buy online and pick up at store as well as contactless payment gateway have been aiding in maximizing the share of customers’ wallet.

While aforementioned factors raise optimism about the outcome of the results, margins remain an area to watch. It’s a known fact that the industry is currently dealing with supply chain bottlenecks and rising freight charges. The spillover effect of the same will be quite visible in the to-be-reported quarterly numbers. Also, the impact of investments to increase teams’ pay and benefits, and expenses on additional safety and cleansing measures due to the coronavirus pandemic on margins cannot be ruled out.

Making the Perfect Choice

Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.

Per the latest Zacks Earnings Preview, the Retail-Wholesale sector is anticipated to witness top-line growth of 7.6%, following an increase of 13.9% in the preceding season. Again, the bottom line is expected to jump 1.5% this earnings season, following growth of 47.1% in the last reporting cycle.

5 Prominent Picks

Investors can count on The TJX Companies, Inc. (TJX Quick QuoteTJX - Free Report) , the off-price apparel and home fashions retailer, with a Zacks Rank #2 and an Earnings ESP of +2.60%. The Zacks Consensus Estimate for its third-quarter fiscal 2022 earnings has been stable at 82 cents in the past 30 days. The company has a trailing four-quarter earnings surprise of 33.3%, on average. The TJX Companies is committed toward boosting growth through effective marketing initiatives and loyalty programs. It has been benefiting from its solid store and e-commerce growth efforts. The company’s HomeGoods segment is seeing robust demand for a while.

You may consider Tempur Sealy International, Inc. (TPX Quick QuoteTPX - Free Report) , which designs, manufactures and distributes bedding products. The stock has a Zacks Rank #2 and an Earnings ESP of +4.14%. The Zacks Consensus Estimate for its third-quarter 2021 earnings has increased by a couple of cents to 85 cents in the past seven days. The company has a trailing four-quarter earnings surprise of 30.2%, on average. The company’s direct channel — the company-owned stores and e-commerce — has been driving growth and profitability. Also, the company’s strength across its brands and products combined with the acquisition of Dreams are other tailwinds. The company is scheduled to report results on Oct 28.

Papa John's International, Inc. (PZZA Quick QuotePZZA - Free Report) also deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +5.07%. The Zacks Consensus Estimate for its third-quarter 2021 earnings is pegged at 69 cents. The consensus mark for earnings has increased by a couple of cents in the past 30 days. The company, which operates and franchises pizza delivery and carryout restaurants, has a trailing four-quarter earnings surprise of 24.5%, on average. The company has been benefiting from continued international expansion plans, strategic partnerships, a strong digital platform and various sales initiatives, including menu innovation.

Five Below, Inc. (FIVE Quick QuoteFIVE - Free Report) , with a Zacks Rank #3 and an Earnings ESP of +3.90%, is a solid bet. The Zacks Consensus Estimate for its third-quarter fiscal 2021 earnings is pegged at 29 cents. The consensus mark for earnings has moved up by a penny in the past 30 days. This extreme-value retailer for tweens, teens and beyond has a trailing four-quarter earnings surprise of 32.7%, on average. Five Below’s focus on providing trend-right products, improving supply chain, strengthening digital capabilities and delivering better WOW products bodes well. The company had projected third-quarter fiscal 2021 net sales in the range of $550 million to $565 million compared with $476.6 million reported in the year-ago period.

DICK'S Sporting Goods, Inc. (DKS Quick QuoteDKS - Free Report) , with a Zacks Rank #3 and an Earnings ESP of +10.27%, is worth betting on. The Zacks Consensus Estimate for its third-quarter fiscal 2021 earnings is pegged at $1.88. The consensus estimate for earnings has increased 3.3% over the past seven days. The company has a trailing four-quarter earnings surprise of 117.4%, on average. DICK’S Sporting Goods sound fundamentals and growth efforts look impressive. Diverse category portfolio, technology advancement and omni-channel capabilities have been aiding this sporting goods retailer to capitalize on robust consumer demand across golf, outdoor activities, home fitness and active lifestyle.