This earnings season has been largely shadowed by the coronavirus pandemic that brought economic activities to a standstill — leading to job losses and pay cuts. This in turn largely affected consumer confidence and household income, dealing a mighty blow to retailers.
Nonetheless, measures undertaken to support households such as stimulus checks and enhanced unemployment benefits coupled with the resumption of business activities post the coronavirus lockdown ushered in some good news for retailers. But consumers still preferred purchasing essentials before splurging on fashion and leisure items. No wonder, players like Target (TGT - Free Report) and Walmart (WMT - Free Report) dealing in food and other household products are likely to have benefited from consumers’ shift in buying behavior and spending pattern due to the pandemic.
Meanwhile, given the aggravating COVID-19 scenario, people have been steering clear of malls, physical stores or other public places, and are instead preferring online shopping. As work from home and dine at home have become the new normal, companies have been directing resources toward advancing omni-channel capabilities and ramping up delivery services or curbside pickup in order to better engage with customers.
Well these may sound soothing but might not be enough to alleviate the pressure on margins. Industry experts pointed that investments in pay and benefits for frontline team members, shift in channel mix toward digital fulfillment, transition toward lower-margin categories, and decline in higher-margin discretionary items’ sales are expected to have hurt margins.
Undeniably, opportunities created and challenges posed by the pandemic will be the highlight of the quarter. Per the latest Earnings Preview, the bottom line is expected to plunge 18.6% this earnings season, following a decline of 20.2% in the last reporting cycle. Meanwhile, the sector is anticipated to witness top-line growth of 4.9%, suggesting a decline from 8.6% increase registered in the preceding season.
Market pundits believe that once the coronavirus spread is contained and vaccine is discovered, the retail sector, which touches every sphere of our life, is likely to witness a sharp rebound. Even now, there are stocks that could be great additions to your portfolio. We have identified five 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
Dollar General Corporation (DG - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +2.90%, is worth betting on. The Zacks Consensus Estimate for its second-quarter fiscal 2020 earnings is pegged at $2.33, suggesting growth of 33.9% from the prior-year quarter. This discount retailer has a trailing four-quarter earnings surprise of 16.9%, on average. The company is slated to announce results on Aug 27. You can see the complete list of today’s Zacks #1 Rank stocks here.
You may also consider home improvement retailer The Home Depot, Inc. (HD - Free Report) . The stock has a Zacks Rank #3 and an Earnings ESP of +10.19%. The Zacks Consensus Estimate for its second-quarter fiscal 2020 earnings is pegged at $3.38, which suggests an increase of 6.6% from the prior-year quarter. The company has a trailing four-quarter earnings surprise of 0.8%, on average. The company is scheduled to report results on Aug 18.
Alibaba Group Holding Limited (BABA - Free Report) , with a Zacks Rank #3 and an Earnings ESP of +3.05%, is also a solid bet. The Zacks Consensus Estimate for earnings for the quarter ended Jun 30, 2020, is pegged at $1.95, suggesting growth of 6.6% from the prior-year quarter. The company, which provides online and mobile commerce businesses in the People's Republic of China and internationally, has a trailing four-quarter earnings surprise of 26%, on average. The company is slated to announce results on Aug 20.
Investors can even count on Costco Wholesale Corporation (COST - Free Report) , an operator of membership warehouses, with a Zacks Rank #3 and an Earnings ESP of +2.50%. The Zacks Consensus Estimate for its fourth-quarter fiscal 2020 earnings is pegged at $2.77, indicating an improvement of 3% from the year-ago period. The company has a trailing four-quarter earnings surprise of 1.9%, on average. The company is slated to announce results on Sep 24.
Big Lots, Inc. (BIG - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +1.66%. The Zacks Consensus Estimate for its second-quarter fiscal 2020 earnings is pegged at $2.66, suggesting an improvement from 53 cents reported in the prior-year quarter. Notably, this closeout retailer has a trailing four-quarter earnings surprise of 62.2%, on average.