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What's in Store for BIG, DLTR, DG & COST This Earnings Season?

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Solid labor market and a steady wage increase along with strategic endeavors are working in favor of Retail – Discount Stores industry players. Also, the strategy to sell products at discounted prices has helped the companies to expand their customer base, which comprises the lower to middle-income group.

The industry participants have been making prudent investments, focusing on cost containment efforts and introducing loyalty and marketing programs. Enhancement of omni-channel capacities, introduction of brands, refurbishment of stores, and expansion of same-day delivery options have been contributing to the top line.

Surely, aforementioned factors have aided the industry players to create a niche for themselves in the burgeoning consumer market. Further, this also paints a rosy picture for a number of participants this reporting cycle.

However, one cannot ignore the fact that the retail-discount space has turned highly competitive with the increasing dominance of Amazon (AMZN - Free Report) . This has compelled a number of players to strengthen their digital ecosystem and boost shipping and delivery capabilities.

While these endeavors drive sales, they entail high costs. Additionally, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses are concerns. Margins will remain one of the key areas to watch out for this earnings season.

That said, let’s check out the probability of four discount retailers to beat earnings estimates this this reporting cycle. 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 as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Here’s Why BIG & DLTR Have a Fair Chance to Beat

Big Lots, Inc. (BIG - Free Report) , which is expected to report first-quarter fiscal 2019 results on Jun 7, is a good bet with a long-term earnings growth rate of 7.6%. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at 70 cents. The company delivered positive earnings surprise of 16.5% in the last reported quarter. This discount retailer has an Earnings ESP of +0.92% and a Zacks Rank #3.

Investors can also count on Dollar Tree, Inc. (DLTR - Free Report) with a Zacks Rank #3 and an Earnings ESP of +0.83%. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $1.13. It has a long-term earnings growth rate of 9.8%. The company delivered positive earnings surprise of 0.5% in the last reported quarter. This operator of discount variety retail stores is expected to report first-quarter fiscal 2019 results on May 30.

Why DG & COST May Miss

Dollar General Corporation (DG - Free Report) , a discount retailer, is likely to miss earnings estimates. The stock has a Zacks Rank #3 and an Earnings ESP of -0.27%. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $1.39. It has a long-term earnings growth rate of 12.5%. The company is expected to announce first-quarter fiscal 2019 results on May 30.

Another stock, which has a lower probability of beating earnings estimates, is Costco Wholesale Corporation (COST - Free Report) . The stock has a Zacks Rank #2 and an Earnings ESP of -0.57%. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $1.81. It has a long-term earnings growth rate of 8.9%. The company is slated to announce third-quarter fiscal 2019 results on May 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

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