The second-quarter earnings season is nearing its end. With results from a large chunk of S&P 500 members already on the board, we have only 16% of members that are yet to come up with results for the quarter. At this time, the sector that generally steals the show is Retail-Wholesale, with a considerable chuck of reports yet to come out. Incidentally, our focus in the article will also be upon Retail stocks that are slated to report earnings on Aug 10.
Q2 Earnings Scorecard
Per the Earnings Preview dated Aug 4, about 84% of the S&P 500 members have reported results so far, together representing 86.7% of the Index’s total market capitalization. Of the 420 S&P 500 members that reported their quarterly numbers, approximately 74.3% delivered positive earnings surprises, while 68.3% beat top-line expectations. Total earnings for these companies were up 11.6%, on 5.6% revenue growth.
The results so far reflect that the proportion of companies beating earnings and revenue estimates is above the historical periods. While growth pace of revenue and earnings is lower than what we had seen in the first quarter, it exhibits an improvement from other periods.
Coming to expectations, S&P 500 companies are expected to report earnings growth of 10% year over year, with a 5.1% jump in revenues. Thus, the overall picture looks favorable for this reporting cycle.
A Look at Retail Sector
The performance of the index is determined by all 16 Zacks sectors, out of which 13 are estimated to witness year-over-year earnings growth in the second quarter. As stated earlier, we are yet to see a sizable chunk of earnings to be released from retailers. Per the latest report, about 41.5% of the S&P 500 companies in the Retail-Wholesale sector have reported their results, wherein 64.7% companies delivered an earnings beat, while 70.6% surpassed revenue estimates. Though earnings of these companies dipped 2.3%, revenues improved 8%.
The Retail-Wholesale Staples sector is currently ranked among the Bottom 13% (14 of 16) of all Zacks sectors. A close look at the sector reveals that retailers continue to bear the brunt of the current challenging retail environment due to sluggish mall traffic, volatile consumer spending and increased competition from online players. Further, these retailers are heavily investing in eCommerce and omni-channel functionalities, which are likely to weigh on margins at least in the near term.
However, we note that the Retail-Wholesale sector has grown 17% year to date, outperforming the S&P 500 market’s jump of 10.6%.
Well our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, the chance of a positive earnings surprise is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
What Awaits JWN, M, KSS in Q2?
So, let’s see what awaits the following Retail stocks that are queued up for earnings releases on Aug 10.
Seattle, WA-based Nordstrom Inc. (JWN - Free Report) currently has an Earnings ESP of +3.28% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
This indicates that the leading fashion specialty retailer offering high-quality apparel, shoes, cosmetics and accessories for men, women and kids is likely to deliver a beat in second-quarter fiscal 2017. The company’s Most Accurate Estimate of 63 cents a share is higher than the Zacks Consensus Estimate of 61 cents.
Moreover, the company registered an average positive earnings surprise of 41% in the trailing four quarters, and has a long-term earnings growth rate of 6%. Nordstrom’s solid past performance reflects its robust brand image, cost-savings initiatives and impressive omni-channel efforts. The company is undertaking several initiatives to keep pace with customers’ shift to online shopping. Evidently, Nordstrom’s online sales formed nearly 24% of the company’s business in first-quarter fiscal 2017. Further, the company is on track to deliver upon its long-term sales target of $20 billion by 2020. Thus, it seems like the company is set to maintain its splendid earnings surprise trend this time as well. (Read more: Nordstrom Q2 Earnings: Can Online Sales Drive a Beat?)
Moving to Macy’s Inc. (M - Free Report) , we are not very optimistic about this department store chain retailer that has delivered an average trailing four-quarter negative surprise of 12.9%. Macy's has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate for second-quarter fiscal 2017 are currently pegged at 44 cents. Moreover, it currently carries a Zacks Rank #4 (Sell).
Challenging retail landscape, aggressive pricing strategy, waning mall traffic and increased online competition have remained the major deterrents for Macy’s. Additionally, the company warned investors that its margins may continue to feel the pinch and expects gross margin to shrivel by 100 basis points in the second quarter. Additionally, Macy’s dwindling top-line and bottom-line results remain the primary threat for investors. (Read more: Is a Disappointment in Store for Macy's in Q2 Earnings?)
Finally, let’s assess the earnings beat criteria for Kohl’s Corporation (KSS - Free Report) , a U.S. based department store chain that operates specialty department stores and an e-commerce site (www.Kohls.com) in the U.S. While the company currently carries a Zacks Rank #3, our earnings beat criteria was let down by its Earnings ESP of 0.00%. Both the Most Accurate estimate and the Zacks Consensus Estimate for second-quarter fiscal 2017 are currently pegged at $1.17 per share.
We note that the company has outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 21.3%. However, Kohl’s has been struggling with weak comps and a difficult retail sales scenario for the last few quarters. The company’s strategic initiative, ‘Greatness Agenda’, which was designed to increase transactions per store and sales, is also failing to deliver positive results. (Read more: Can Kohl's Sales Boosting Initiatives Aid Q2 Earnings?)
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