Though the earnings season has reached its tail end, the main chunk of releases from the Retail-Wholesale sector is yet to come. Per the latest Zacks Earnings Outlook, the sector is anticipated to witness top-line growth of 5.2% year over year in first-quarter 2022. This follows a 7.5% increase in the preceding season and a 14.2% jump in the year-ago period. Again, the bottom line is expected to decline 18.8% 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.

It is evident from the aforementioned estimates that the sector is likely to have witnessed a modest acceleration in sales as soaring inflation has been squeezing disposable income. Higher gasoline and food prices have been forcing consumers to rein in spending on big-ticket items and look for budget-friendly options. Again, these reporting cycle companies are up against last year’s record government stimulus that spurred demand above pre-pandemic levels.

Meanwhile, industry participants have been dealing with high labor costs amid the tight labor market, increased freight costs, container shortages, and supply delays. These have been putting pressure on margins and, in turn the bottom line. Nonetheless, companies have been focused on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks as well as adopting effective pricing policies.

Companies have been undertaking a more consumer-centric approach — emphasizing on membership programs, upgrading store technology, shopping via mobile apps 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 the share of customers’ wallets.

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 Quick QuoteCOST - Free Report) deserves mention. The stock has a Zacks Rank #2 and an Earnings ESP of +1.90%. The Zacks Consensus Estimate for its third-quarter fiscal 2022 earnings is pegged at $3.04 per share. The consensus mark for earnings has increased by a penny in the past seven 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.

Five Below, Inc. (FIVE Quick QuoteFIVE - Free Report) , with a Zacks Rank #3 and an Earnings ESP of +0.17%, is worth betting on. The Zacks Consensus Estimate for its first-quarter fiscal 2022 earnings per share is pegged at 60 cents. The consensus estimate for earnings has been stable over the past 30 days. This extreme-value retailer for tweens, teens and beyond has a trailing four-quarter earnings surprise of 21.4%, on average.

Five Below’s focus on providing trend-right products, improving the supply chain, strengthening digital capabilities and remodeling older stores should support sales growth and increase market share. The company’s business model, financial strength, store growth opportunities, and upside potential offered by Five Beyond make us optimistic.

You may consider Designer Brands Inc. (DBI Quick QuoteDBI - Free Report) . The stock has a Zacks Rank #3 and an Earnings ESP of +2.17%. The Zacks Consensus Estimate for its first-quarter fiscal 2022 earnings per share is pegged at 23 cents. The consensus mark has risen by a penny in the past seven 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.

Investors can count on Ross Stores, Inc. (ROST Quick QuoteROST - Free Report) , one of the largest off-price apparel and home fashion chains in the United States, with a Zacks Rank #2 and an Earnings ESP of +1.24%. The Zacks Consensus Estimate for first-quarter fiscal 2022 earnings per share has been stable at 99 cents in the past 30 days. ROST has a trailing four-quarter earnings surprise of 33.3%, on average.

Ross Stores has been consistent with the execution of its store expansion plans over the years. The disruption in the industry caused by the pandemic provided Ross Stores with an opportunity to expand its market share. The company has been focusing on improving in-store productivity and undertaking strategic price increases to mitigate higher costs. The company is slated to report financial numbers on May 19.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.