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5 Potential Winners in the Retail Space This Earnings Season

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Although the earnings season is underway, most companies in the Retail-Wholesale sector are yet to report their financial numbers. The quarterly reports of companies in the sector are likely to reflect benefits from constant omni-channel initiatives, brand introduction, store expansion and remodeling, and efforts to enhance delivery services. Additionally, efficient pricing actions, and marketing and loyalty programs are likely to have worked in favor the industry participants.

Moreover, sturdy labor market and steady wage gains are likely to have aided consumers’ buying capacity, which is a key catalyst for the consumer-driven retail space.

These favorable factors paint a rosy picture for a number of industry participants this reporting cycle, which coincides with the holiday season. A report from National Retail Federation indicates that holiday retail sales, excluding automobile dealers, gasoline stations and restaurants, increased 4.1% year over year to $730.2 billion during 2019. Evidently, this is likely to reflect on the companies’ top-line numbers. Per the latest Zacks Earnings Outlook, the sector is anticipated to witness top-line growth of 6.4% this earnings season.

Notably, retailers stay on their toes during the holiday season, the busiest part of the year, flooding the market with offers and promotions. They sweep buyers off their feet with early-hour store openings, huge discounts and free shipping on online purchases. Since the season accounts for a sizeable chunk of yearly revenues, retailers grab every opportunity to drive footfall.

As companies try all means to gain market share, costs associated with promotional activities and an aggressive pricing strategy have been eating into margins. Meanwhile, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses are other bottlenecks. A cumulative impact of these are likely to show on the bottom line. The latest Zacks Earnings Outlook shows that the sector’s bottom line is expected to decline 6.9%.

All said, let’s look for retail-wholesale stocks that are likely to trump estimates this earnings season. 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.

5 Prominent Picks

You may consider Zumiez Inc. (ZUMZ - Free Report) , a specialty retailer of apparel, footwear and accessories. The stock has a Zacks Rank #1 and an Earnings ESP of +0.24%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 earnings is pegged at $1.36, suggesting growth of 15.3% from the year-ago figure. The company has a trailing four-quarter positive earnings surprise of 64.1%, on average. The company is slated to announce results on Mar 12. You can see the complete list of today’s Zacks #1 Rank stocks here.

DICK'S Sporting Goods, Inc. (DKS - Free Report) also deserves a mention. The stock has a Zacks Rank #1 and an Earnings ESP of +12.40%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 earnings is pegged at $1.23, indicating a year-over-year improvement of 15%. This sporting goods retailer has a trailing four-quarter positive earnings surprise of 11.5%, on average.

Another worthwhile option is Walmart Inc. (WMT - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +0.57%. The Zacks Consensus Estimate for earnings for the to-be-reported quarter is pegged at $1.44, indicating an improvement of 2.1% from the year-ago period. This operator of supercenters, supermarkets, hypermarkets, warehouse clubs has a trailing four-quarter positive earnings surprise of 6.8%, on average. The company is slated to announce results on Feb 18.

Investors can even count on Ross Stores, Inc. (ROST - Free Report) , an off-price retailer of apparel and home accessories with a Zacks Rank #2 and an Earnings ESP of +2.84%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 earnings is pegged at $1.25, indicating an improvement of 4.2% from the year-ago period. The company has a trailing four-quarter positive earnings surprise of 3.8%, on average. The company is slated to announce results on Mar 3.

Costco Wholesale Corporation (COST - Free Report) with a Zacks Rank #2 and an Earnings ESP of +0.21% is worth betting on. The Zacks Consensus Estimate for earnings for the to-be-reported quarter is pegged at $2.06, suggesting growth of 2.5% from the prior-year quarter. This operator of membership warehouses has a trailing four-quarter positive earnings surprise of 7.8%, on average. The company is slated to announce results on Mar 5.

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