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 a modest acceleration in sales with a decline in the bottom line.

Per the latest Zacks Earnings Preview, the sector is anticipated to have witnessed top-line growth of 5.1% year over year in the fourth quarter of 2022. This follows an 8.3% increase in the preceding season. Meanwhile, the bottom line is expected to have declined 32% this earnings season. The sector registered an earnings decline of 5.3% in the previous reporting cycle.

Factors at Play

Product cost inflation, tight labor market and supply chain issues are some of the headwinds that players in the sector have been encountering lately. This has been putting pressure on margins, and in turn the bottom line. Meanwhile, soaring prices have squeezed consumers’ disposable income compelling them to rein in spending. As a result, quite a few retailers juggled with excess inventory.

To beat the blues, retailers have been reengaging with customers, reviewing pricing, refreshing assortments and mitigating costs wherever possible. Companies have been also directing resources toward advancing omni-channel capabilities and providing high-end customer service.

Traditionally, the fourth-quarter reporting cycle includes the U.S. holiday season, which accounts for a sizable chunk of yearly revenues for retailers. Disappointingly, holiday numbers came below expectations as consumers navigated inflationary pressure and high borrowing cost environment. That being said, declining unemployment and steady wage gains still kept the demand alive.

Data compiled by the National Retail Federation (NRF) showed that holiday retail sales increased 5.3% year over year to $936.3 billion during 2022’s November-December period. However, the numbers were below NRF’s projection of 6% to 8% increase over the 2021 period to between $942.6 billion and $960.4 billion.

Making the Perfect Choice

With the earnings season in full swing, it is worthwhile to invest in companies with earnings beat potential. A stock generally rallies on an earnings beat.

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.

We have identified four stocks — Ulta Beauty, Inc. (ULTA Quick QuoteULTA - Free Report) , Burlington Stores, Inc. (BURL Quick QuoteBURL - Free Report) , Five Below, Inc. (FIVE Quick QuoteFIVE - Free Report) , and Macy's, Inc. (M Quick QuoteM - Free Report) — that are poised to trump earnings estimates this earnings season.

4 Prominent Picks

Ulta Beauty with a Zacks Rank #2 and an Earnings ESP of +8.53%, is worth betting on. The Zacks Consensus Estimate for its fourth-quarter fiscal 2022 earnings per share is pegged at $5.53. The consensus estimate for earnings has risen 0.9% over the past 30 days. This beauty retailer and premier beauty destination for cosmetics, fragrance, skincare products, hair care products and salon services has a trailing four-quarter earnings surprise of 26.2%, on average.

Ulta Beauty has been strengthening its omni-channel business and exploring the potential of both physical and digital facets. It has been implementing various tools to enhance guests' experience, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. Ulta Beauty focuses on offering customers a curated and exclusive range of beauty products through innovation. The company is slated to report financial numbers on Mar 9 after market close.

Investors can count on Burlington Stores with a Zacks Rank #2 and an Earnings ESP of +1.37%. The Zacks Consensus Estimate for fourth-quarter fiscal 2022 earnings per share has been stable at $2.71 in the past 30 days. The consensus estimate suggests an increase of 7.1% from the year-ago period.

Burlington Stores is poised well for growth, thanks to the successful execution of the Burlington 2.0 strategy and strong prospects. The strategy is focused on three aspects, marketing, merchandising and store prototype. Burlington Stores’ off-price model is helping customers to get nationally branded, fashionable and high-quality products at the right price. BURL is scheduled to report financial numbers on Mar 2 before market open.

You may consider Five Below, which has a Zacks Rank #3 and an Earnings ESP of +0.08%. The Zacks Consensus Estimate for its fourth-quarter fiscal 2022 earnings per share is pegged at $3.06. The consensus mark has improved by a penny over the past 30 days and suggests an increase of 22.9% from the year-ago period. This extreme-value retailer for tweens, teens and beyond has a trailing four-quarter earnings surprise of 26.3%, on average.

Five Below’s focus on providing trend-right products, improving the supply chain, strengthening digital capabilities and growing its brick-and-mortar footprint bodes well. The company is known for its impressive range of merchandise, per evolving consumer trends. These factors, combined with its pricing strategy, enable it to cater to demographic shoppers and resonate with value-seeking customers.

Macy's also deserves mention. The stock has a Zacks Rank #3 and an Earnings ESP of +0.54%. The Zacks Consensus Estimate for its fourth-quarter fiscal 2022 earnings per share has been stable at $1.60 over the past seven days. This omni-channel retailer has a trailing four-quarter earnings surprise of 61.4%, on average.

Macy’s successful execution of the Polaris strategy, robust omnichannel capabilities, curated merchandise assortment and initiatives to provide customers with a seamless shopping experience should have favorably contributed toward top line. Macy’s is scheduled to report financial numbers on Mar 2 before market open.