Retail sector is hogging the limelight and this time for good reasons. The holiday season turned out to be a blissful one as consumers continued to fill their shopping carts on the back of a favorable economic scenario.
A buoyant stock market, rising income, low unemployment level and upbeat consumer sentiment together worked in favor of retailers. Consumer spending — one of the pivotal factors driving the economy — remained robust during the season with retail sales rising 0.4% and 0.9% in December and November, respectively, per government data.
Analysts pointed that the festive season showcased a stellar performance since the recession of 2008. Per National Retail Federation, sales (excluding autos, gas and restaurant sales) during the November/December period increased 5.5% to $691.9 billion, surpassing its own projection of a 3.6% - 4% rise. Online shopping, which is included in the results, surged 11.5%. Clearly, retailers cashed in on customers, who preferred shopping from the comfort of their homes, online or through their mobile phones.
The sector has certainly been facing the brunt of heightened online competition, lower footfall and changing consumer spending patterns but of late the tables are turning in favor of the retailers. With digital transformation in shopping they are fast adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. The result of their endeavors was quite visible from the holiday sales data.
Retailers such as Urban Outfitters (URBN - Free Report) and Kohl’s Corp. (KSS - Free Report) registered sales growth of 3.6% and 6.9%, respectively, during the November-December period, while both J. C. Penney (JCP - Free Report) and Target (TGT - Free Report) recorded comparable store sales growth of 3.4%. Macy’s (M - Free Report) comparable sales on an owned basis rose 1%, while on an owned plus licensed basis the same increased 1.1% in the combined November/December period.
4 Likely Winners for the Season
Certainly investors are pinning hopes on the retail stocks this earnings season, given the euphoria surrounding the sector. The sector, which occupies the top 13% (2 out of 16) position in the list of 16 Zacks categorized sectors, has advanced roughly 34% in a year and outperformed the S&P 500’s growth of approximately 23%. Moreover, according to the latest Earnings Trends report, the sector is expected to record top and bottom-line growth of 8.5% and 4.5%, respectively, in this earnings season.
Here we have highlighted four stocks with Zacks Rank #1 (Strong Buy) or 2 (Buy) and a positive Earnings ESP. The chance of a positive earnings surprise for stocks having such combination is as high as 70%.
Dollar Tree, Inc. (DLTR - Free Report) , which is expected to report fourth-quarter fiscal 2017 results on Mar 7, is a solid bet with a long-term earnings growth rate of 13.1%. The Zacks Consensus Estimate for the quarter is pegged at $1.88. The company delivered an average positive earnings surprise of 7.4% in the trailing four quarters.
This operator of discount variety stores has an Earnings ESP of +1.34% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Investors can even count on Darden Restaurants, Inc. (DRI - Free Report) with a Zacks Rank #1 and an Earnings ESP of +0.80%. The Zacks Consensus Estimate for the quarter is pegged at $1.60. In the trailing four quarters, the company has outperformed the consensus mark by 3% and has a long-term earnings growth rate of 10.9%. This casual dining restaurant operator is anticipated to report third-quarter fiscal 2018 results on Mar. 26.
Another stock that you may consider is The Children's Place, Inc. (PLCE - Free Report) with a Zacks Rank #2 and an Earnings ESP of +2.67%. The Zacks Consensus Estimate for the quarter is pegged at $2.42. The company delivered an average positive earnings surprise of 14% in the trailing four quarters. It has a long-term earnings growth rate of 9%. This children's specialty apparel retailer is expected to come out with fourth-quarter fiscal 2017 financial numbers on Mar 14.
Another lucrative option is Ross Stores, Inc. (ROST - Free Report) , an off-price retailer of apparel and home accessories. The stock has a Zacks Rank #2 and an Earnings ESP of +5.60%. The Zacks Consensus Estimate for the quarter is pegged at 93 cents.
The company registered an average positive earnings surprise of 5.5% in the trailing four quarters and has a long-term earnings growth rate of 10%. The company is slated to announce fourth-quarter fiscal 2017 results on Mar 6.
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