Advance Auto Parts, Inc. (AAP - Free Report) and The Home Depot, Inc. (HD - Free Report) fall under the broader broader Retail-Wholesale sector. The sector houses a varied range of industries such as Building Products, Automotive Parts, Apparel and Shoes, Retail-Miscellaneous, and more. With evolving shopping patterns, including customers’ preference for online shopping over offline, retailers are now more focused on reinforcing omni-channel capabilities, particularly digital advancement.
Notably, the third-quarter earnings season is likely to be favorable for the Retail-Wholesale sector, particularly on the bottom-line front. Per the latest Earnings Preview, the sector’s bottom line is expected to increase 23% year over year while sales are likely to grow 6.1%. Further, margins for the space are projected to inch up 0.7% year over year.
A glance at the sector’s performance shows that about 50% of the 38 S&P 500 companies in the sector already reported their quarterly numbers as of Nov 9. Out of the 19 companies, 89.5% delivered earnings beat while 63.2% outpaced sales estimates. Further, earnings and revenues registered year-over-year improvement of 37.5% and 10.7%, respectively.
Advance Auto Parts and Home Depot are slated to report third-quarter earnings tomorrow. Here is a brief analysis:
How AAP is Expected to Perform
Advance Auto Parts, which belongs to the Zacks Automotive - Retail and Wholesale - Parts industry, is focusing on expansion through partnerships, increasing online presence and opening stores. Players in this industry are benefiting from higher demand for automobiles alongside new model launches and innovations in technology.
Advance Auto Parts is also undertaking initiatives to streamline its end-to-end supply chain. Moreover, the company is reaping benefits from enhanced online traffic, which is enabling it to offer an extensive portfolio of aftermarket auto parts, accessories and maintenance items to a larger customer base.
However, initiatives taken to improve the supply chain and other IT projects are resulting in increased capital investments for Advance Auto Parts, and in turn, weighing on its margins. (Read: Advance Auto Parts' Q3 Earnings: Is a Beat in Store?)
According to the Zacks model, Advance Auto Parts is likely to beat estimates in the third quarter of 2018. This is because our research shows that the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) with a positive Earnings ESP increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Advance Auto Parts’ Earnings ESP of +0.74% and a Zacks Rank #2 make us reasonably confident of an earnings beat in the upcoming release.
You can see the complete list of today’s Zacks #1 Rank stocks here.
How HD is Likely to Perform
Home Depot, which falls under the Zacks Building Products - Retail industry, is expected to gain from its focus on Pro Customers, strength in core business and a disciplined capital strategy. In fact, players in this industry are expected to gain from consistent efforts to boost interconnected strategies, marketing strategies and business operations. Companies in this space are focusing on technological advancements, better interpreting customers’ needs, and meeting their demands conveniently and quickly.
Home Depot remains keen on building interconnected capabilities by upgrading its digital assets in order to provide a more seamless experience to customers. Management also plans to accelerate investments in the next three years to boost customers’ experience and shareholder value. Further, the company is continually developing and rolling out delivery capabilities. These initiatives are likely to boost the company’s third-quarter fiscal 2018 results. (Read: Is Home Depot Poised to Beat Earnings Estimates in Q3?)
However, commodity cost inflation in various categories, including rising raw material and transportation costs, as well as recently enacted tariffs, are likely to put pressure on margins.
Home Depot has a Zacks Rank #3, which increases the predictive power of earnings beat. However, the company’s Earnings ESP of -1.94% makes surprise prediction difficult.
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