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Wal-Mart, Macy's, Cisco and Amazon are part of Zacks Earnings Preview

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For Immediate Release

Chicago, IL – May 14, 2018 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Wal-Mart (WMT - Free Report) , Macy’s (M - Free Report) , Cisco (CSCO - Free Report) and Amazon (AMZN - Free Report) .

To see more earnings analysis, visit https://at.zacks.com/?id=3207.

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Can Retail Stock Maintain Their Momentum?

The earnings focus shifts to the Retail sector this week as traditional brick-and-mortar retailers come out with quarterly results. Stocks of most of these traditional operators have done better than the broader markets this year, except for Wal-Mart which reports before the market’s open on Thursday and whose stock has been a notable laggard since the company’s last earnings release back in mid-February. The company’s recent big Indian purchase has failed to reverse the stock’s underperformance, with the stock now down -14.8% in the year-to-date period.

In total, we have 125 companies on deck to come out with Q1 results, including 10 S&P 500 members. Macy’s and Wal-Mart are major retailers reporting results this week, with Cisco as another notable reports.

Macy’s, Nordstrom and other department store stocks have been strong performers this year, with Macy’s up +18.7% and Nordstrom up +3.5% in the year-to-date period, doing better than the S&P 500’s +2.5% gain. Driving this recent momentum is the market’s optimism about these companies’ restructuring and competitive repositioning, with Macy’s actively bringing down its physical footprint and investing in its digital platform. We will see if either Macy’s or Nordstrom can sustain these gains after they come out with results in the next few days.  

The Zacks Retail sector is up +7% in the year-to-date period, doing better than the broader market. Helping the sector’s recent outperformance is the aforementioned positive momentum in the stock prices of Macy’s and other traditional retailers. But we should keep in mind that the Zacks Retail sector also includes online vendors like Amazon in addition to traditional brick-and-mortar operators.

The recent momentum in these traditional retail stocks notwithstanding, the group remains on a long-term downtrend. Macy’s shares are down -25% over this longer time horizon.

There is another very interesting aspect to this chart as well. The blue (Macy’s) and green (Amazon) lines moving in lock-step with each other in the earlier part of the chart - through July 17, 2015 to be precise. In other words, what seem such obvious existential secular headwinds facing Macy’s and its peers at present are only so with the benefit of hindsight; the market had no idea what lay ahead for Macy’s and its peers prior to that July day in 2015.

The takeaway from this discussion is that many trends that appear crystal clear in retrospect are anything but that in real time.

What’s the significance of that date in July 2015? Amazon held its first Prime Day on July 15th to celebrate the 20th anniversary of its founding, which it claimed turned out to be bigger than Black Friday. As you can see in the chart above, the world has never been the same since that day, particularly for Macy’s and its department store peers.

Retail Sector Scorecard

We now have Q1 results from 50% of the retailers in the S&P 500 index. Total earnings for these Retail sector companies that have reported results already are up +26.1% from the same period last year on +14.9% higher revenues, with 68.4% beating EPS estimates and 63.2% beating revenue estimates.

The Retail sector results thus far are from the online vendors and restaurant players, with ‘traditional’ operators starting to report only this week. While growth (both earnings as well as revenues) is tracking notably above historical periods, the proportion of positive surprises is on the weak side.

With respect to growth, Amazon’s blockbuster numbers, particularly on the revenues front, has a big role in the very strong growth picture at this stage. Amazon’s Q1 earnings increased +125% on +42.9% higher revenues, with the net dollar increase in the online retailer’s revenues an impressive $15.3 billion.

Q1 Earnings Season Scorecard (as of Friday, May 11th)

For the S&P 500 index as a whole, we now have Q1 results from 455 index members. Total earnings for the 455 index members that have reported results already are up +24.4% from the same period last year on +9.4% higher revenues, with 77.6% beating EPS estimates and 75.2% beating revenue estimates. The proportion of companies beating both EPS and revenue estimates is 62.9%.

Earnings and revenue growth rate and the proportion of positive EPS surprises is tracking above what we have been seeing from the same group of 455 index members. But revenue surprises are tracking modestly below the preceding earnings season, but remain above historical periods.

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