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Pitching 4 Retail Stocks Likely to Beat Earnings Estimates

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Though the earnings season has reached its pinnacle, the main chunk of releases from the Retail-Wholesale sector is yet to come. This reporting cycle, the sector is likely to have witnessed modest acceleration in sales as soaring inflation has been pinching consumers’ pockets. Again, companies are up against last year’s record government stimulus that spurred demand above pre-pandemic levels.

Meanwhile, higher gasoline and food prices have been forcing consumers to rein in spending on big-ticket items. Evidently, rising cost pressures amid logistic bottlenecks, and tight labor market and material shortages are putting margins in the spotlight. Nonetheless, retailers have been reengaging with customers, reviewing pricing, refreshing assortments and mitigating costs, wherever possible.

Let’s Delve Deeper

Although lack of stimulus checks this year might have dented demand to an extent, the retail industry should have benefited from declining unemployment and steady wage gains. Per the Commerce Department, U.S. retail and food services sales grew 6.9% year over year in the month of March, albeit at a lower rate. We note that retail sales had increased 18.2% in February from the prior-year period.

Industry experts pointed that rising prices might have compelled customers to look for budget-friendly options. No wonder, industry participants have been coming up with unique products and better deals.

Companies have been undertaking a more consumer-centric approach — emphasizing on membership programs, upgrading 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 solutions have been aiding in maximizing share of customers’ wallet.

Undoubtedly, lingering supply chain issue remains a major challenge this reporting cycle. We believe that any failure to restock inventory at fair prices or delay in getting the products delivered to consumers’ doorsteps might have resulted in loss of sales for retailers. As a result, companies are likely to have witnessed tough year-over-year sales and earnings comparisons.

Per the latest Zacks Earnings Preview, the Retail-Wholesale sector is anticipated to witness top-line growth of 5% in first-quarter 2022. This followed a 7.5% increase in the preceding season and 14.2% jump in the year-ago period. Again, the bottom line is expected to decline 12.3% this earnings season. The sector had registered earnings growth of 39.9% in the last reporting cycle and 86.5% in the prior-year quarter.

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.

4 Prominent Picks

Costco Wholesale Corporation (COST - Free Report) deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +1.39%. The Zacks Consensus Estimate for its third-quarter fiscal 2022 earnings is pegged at $3.03 per share. The consensus mark for earnings has increased 2% in the past 30 days. COST has a trailing four-quarter earnings surprise of 13.3%, on average.

Costco continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. Its growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. Cumulatively, these factors have been aiding in registering impressive sales numbers. The company is scheduled to report results on May 26.

Boot Barn Holdings, Inc. (BOOT - Free Report) with a Zacks Rank #3 and an Earnings ESP of +2.44%, is worth betting on. The Zacks Consensus Estimate for its fourth-quarter fiscal 2022 earnings per share is pegged at $1.30. The consensus estimate for earnings has been stable over the past 30 days.

This lifestyle retailer of western and work-related footwear, apparel and accessories has been successfully navigating through the challenging environment, courtesy of merchandising strategies, omni-channel capabilities and better expense management as well as marketing. This combined with the expansion of the store base has helped Boot Barn Holdings gain market share and strengthen its position in the industry.

Boot Barn Holdings, Inc. Price, Consensus and EPS Surprise

Boot Barn Holdings, Inc. Price, Consensus and EPS Surprise

Boot Barn Holdings, Inc. price-consensus-eps-surprise-chart | Boot Barn Holdings, Inc. Quote

You may consider Designer Brands Inc. (DBI - Free Report) . The stock has a Zacks Rank #3 and an Earnings ESP of +4.55%. The Zacks Consensus Estimate for its first-quarter fiscal 2022 earnings per share is pegged at 22 cents. The consensus mark has risen by a penny in the past 30 days. DBI has a trailing four-quarter earnings surprise of 112.8%, on average.

Designer Brands’ flexible business model, best-in-class omnichannel capabilities and Owned Brands portfolio have been the key drivers of growth. The company’s efforts to expand sourcing and supply chain capabilities have been leading to speed to market with new designs and faster delivery times.

Designer Brands Inc. Price, Consensus and EPS Surprise

Designer Brands Inc. Price, Consensus and EPS Surprise

Designer Brands Inc. price-consensus-eps-surprise-chart | Designer Brands Inc. Quote

Investors can count on Beacon Roofing Supply, Inc. (BECN - Free Report) , the distributor of residential and non-residential roofing materials, with a Zacks Rank #3 and an Earnings ESP of +8.16%. The Zacks Consensus Estimate for its first-quarter 2022 earnings per share has increased by a couple of cents to 49 cents in the past 30 days. BECN has a trailing four-quarter earnings surprise of 557.7%, on average.

Beacon has been gaining from continued focus on enhancing digital platforms, disciplined cost management and strong pricing execution. Also, a robust residential backdrop is expected to drive growth. BECN has been cementing its position in the industry with strategic buyouts. In the recent past, the company acquired Crabtree Siding and Supply that further strengthened its footprint in Tennessee. The company is slated to report financial numbers on May 5.

Beacon Roofing Supply, Inc. Price, Consensus and EPS Surprise

Beacon Roofing Supply, Inc. Price, Consensus and EPS Surprise

Beacon Roofing Supply, Inc. price-consensus-eps-surprise-chart | Beacon Roofing Supply, Inc. Quote

Wrapping Up

The first-quarter 2022 is the most crucial reporting cycle for the market, given the challenging economic backdrop. The earnings season would not only highlight the current scenario and its impact on numbers but also throw light on the path companies would prefer to take from here.