The Q3 earnings season has been grabbing eyeballs not only because it is turning out to be an encouraging one after five straight quarters of earnings declines but it has also coincided with the much-talked about Presidential election wherein Donald Trump triumphed over Hillary Clinton. We are almost at the tail end of the reporting cycle, with the Retail/Wholesale sector in the limelight.
Per our Earnings Preview report as of Nov 11, out of the 455 S&P 500 companies that have come up with their quarterly numbers, approximately 72.7% posted positive earnings surprises, while 55.4% beat top-line expectations. Total earnings for these index members were up 3.9% from the year-ago quarter, while revenues increased 2.7%. The report projects that earnings for the total S&P 500 companies will improve 3.4% from the year-ago period, with total revenue rising 1.5%.
The performance of the index is not restricted to a single sector, and of the 16 Zacks sectors, four are expected to witness an earnings decline in the third quarter. Of these, Auto, Oil/Energy and Transportation are likely to be a major drag. However, the Retail/Wholesale sector is witnessing a significant improvement.
Out of 43 retail companies, 24 have posted a positive earnings surprise of 54.2%, while 37.5% beat revenue expectations. While total earnings for these 24 retailers were up 12.7% from the year-ago quarter, revenues increased 8.6%.
Total earnings for the Retail/Wholesale sector are estimated to rise 5.9%, whereas revenues are projected to improve 5.2%. So, let’s see what awaits the following retail stocks that are queued up for earnings releases on Nov 17.
Ross Stores Inc. (ROST - Free Report) has surpassed the Zacks Consensus Estimate by an average of 3.8% in the trailing four quarters.
Our proven model does not conclusively show that Ross Stores is likely to beat earnings estimates in third-quarter fiscal 2016. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
This off-price retailer has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 56 cents. Moreover, it carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Management at Ross Stores expected the second half of fiscal 2016 to face challenges from strong year-over-year comparisons amid macroeconomic uncertainty and a volatile retail landscape. (Read more: Will Ross Stores Q3 Earnings Ruin its Solid Trend?)
Next, let’s take a sneak peek at Best Buy Co., Inc. (BBY - Free Report) , which has outperformed earnings estimates in all the trailing four quarters, with an average beat of 22%.
Best Buy has an Earnings ESP of +4.26%, as the Most Accurate estimate is at 49 cents, while the Zacks Consensus Estimate is pegged at 47 cents. A positive ESP combined with the company’s Zacks Rank #2, makes us reasonably confident of an earnings beat.
This multinational specialty retailer has posted better-than-expected results in the last 15 quarters and the trend is expected to continue in third-quarter fiscal 2017. Also, an improvement in online comparable sales, backed by higher traffic and conversion rates, is driving the company’s top and bottom lines. (Read more: Best Buy to Post Q3 Earnings: A Beat in the Cards?)
Another retail stock in the list is The Gap, Inc. (GPS - Free Report) , which delivered a positive earnings surprise of 1.7% in the last quarter and in-line earnings for five straight quarters prior to that.
Our proven model does not conclusively show that Gap is likely to beat earnings in third-quarter fiscal 2016. It has an Earnings ESP of 0.00% with both the Most Accurate estimate and the Zacks Consensus Estimate pegged at 60 cents. The company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
While a favorable Zacks Rank increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
Gap intends to escalate its transformation plan by bringing meaningful changes to its product portfolio and operating capabilities worldwide. Moreover, it remains committed to better position itself for long-term growth by setting its priorities right and channelizing its resources accordingly. (Read more: Gap Q3 Earnings: What's in the Cards for the Stock?)
Next in the pipeline is Staples, Inc. (SPLS - Free Report) , a leading retailer of office products and services. It has missed the Zacks Consensus Estimate by an average of 0.2% in the trailing four quarters.
The company has an Earnings ESP of -2.94% and a Zacks Rank #4. The Zacks Consensus Estimate for third-quarter fiscal 2016 stands at 34 cents.
Stiff competition, soft international sales and sluggish demand for paper-based office products due to technological advancements remain major concerns for Staples. Adjusted earnings per share for the third quarter are projected in the range of 32–35 cents. (Read more: Staples to Post Q3 Earnings: A Miss in the Cards?)
Finally, let’s see what’s in store for Williams-Sonoma Inc. (WSM - Free Report) , a multi-channel specialty retailer of premium quality home products, which has surpassed the Zacks Consensus Estimate by an average of 3% in the trailing four quarters.
Our proven model does not conclusively show that Williams-Sonoma is likely to beat earnings estimates in third-quarter fiscal 2016. It has an Earnings ESP of -2.60%, as the Most Accurate estimate is at 75 cents, while the Zacks Consensus Estimate is pegged at 77 cents. It carries a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise
Williams-Sonoma has been reporting soft comparable brand revenues for some time owing to a soft retail environment and cautious spending by customers. This led management to lower its outlook for fiscal 2016. It expects fiscal 2016 earnings per share in the range of $3.35–$3.55, lower than the prior expectation of $3.50–$3.65. Though the company expects its growth initiatives to drive revenue in the coming quarter, margins are hurt due to supply chain investments and inventory initiatives.
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