The earnings season has so far been eclipsed by the impacts of COVID-19. Sluggish economic activities compelled many companies to adopt pay cuts and curb employment, which in turn affected consumers spending ability and built pressure on retailers.
Nevertheless, the situation gradually improved for players in the sector as lockdown restrictions eased and business activities resumed. Consequently, retail sales jumped 18.2% in May, recovering from the substantial plunge of 14.7% in April. Moreover, decisions taken by the Trump administration to provide enhanced unemployment benefits to individuals helped a lot in restoring consumer spending. The trend continued as retail sales improved 8.4% in June and 1.2% in July. While essentials and other household products remain the preference, fashion and leisure items also found space in the shopping list.
No wonder, consumers shopping patterns were seen to have altered amid the pandemic. With people maintaining social distancing, they prefer online transactions. Therefore, companies are directing resources toward advancing omni-channel capabilities and ramping up delivery services or curbside pickup to enhance engagement with customers.
While these trends might sound somewhat assuring, margins remain an area to watch out for when the companies report. Industry experts pointed out that investments in pay and benefits, 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.
Clearly, this earnings season for the retail sector highlights the various opportunities and challenges created by the pandemic. That said, let’s take a sneak peek into three stocks from the Retail-Wholesale sector that are slated to report second-quarter fiscal 2020 financial results on Aug 19.
Per the latest Earnings Preview, the sector’s 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% compared with an increase of 8.6% registered in the prior season.
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
What’s in the Cards for Target?
Target Corporation’s (TGT - Free Report) top line is likely to have benefitted from coronavirus-led stockpiling, shift to food-at-home trend as well as solid contribution from digital channel. However, shifts in channel-mix are likely to have weighed on margins. The company currently carries a Zacks Rank #3 (Hold) and an Earnings ESP of +8.61%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for second-quarter fiscal 2020 revenues is pegged at $19,907 million, which indicates growth of 8.1% from the prior-year quarter’s figure. However, the bottom line of this general merchandise retailer is expected to decline year over year. Although the Zacks Consensus Estimate for earnings has risen by 9 cents to $1.56 in the past seven days, the figure suggests a decline of 14.3% from the year-ago quarter’s levels. Notably, the company has a trailing four-quarter earnings surprise of 14.4%, on average. (Read More: How is Target Poised Ahead of Q2 Earnings Release?)