Though the earnings season has reached its tail end, the main chunk of releases from the Retail-Wholesale sector is yet to come. This earnings season, the sector has been buoyant on a favorable consumer environment and endeavors undertaken at company levels. It goes without saying that a strengthening labor market and rising disposable income have been aiding consumers’ buying capacity.
The sector’s quarterly reports are likely to reflect benefits from constant omnichannel initiatives, brand introduction, store expansion and remodeling as well as efforts to enhance delivery services. Additionally, efficient pricing actions, marketing and loyalty programs along with improved checkouts and mobile point-of-sale capabilities allow the industry players to engage better with customers. These endeavors help retailers keep pace with the evolving consumer environment and counter hurdles related to falling brick-and-mortar traffic.
These efforts have been aiding the companies’ top-line performance for quite some time now, and the to-be-reported quarter is not likely to be an exception.
However, one cannot ignore the intensifying competition in the space with increasing dominance of e-commerce players. This has compelled a number of traditional retailers to strengthen their digital ecosystem and bolster shipping and delivery capabilities. While these endeavors have been driving sales, they entail high costs.
Additionally, any deleverage in SG&A rate, higher labor costs, and increased marketing and other store-related expenses remain concerns. As a result, margins are a key metric to watch out for this earnings season.
All said, let’s look at retail-wholesale stocks that are likely to trump estimates this time around. Per the latest Zacks Earnings Outlook, the sector is anticipated to witness top-line growth of 9% this reporting cycle, while the bottom line is expected to drop 0.4%. Currently, the sector is ranked among the top 19% out of the 16 Zacks sectors.
Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), 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.
4 Prominent Picks
Walmart Inc. (WMT - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +0.75%, is worth a bet. The Zacks Consensus Estimate for third-quarter fiscal 2020 earnings is pegged at $1.09, suggesting growth of about 1% from the prior-year quarter. This operator of supercenters, supermarkets, hypermarkets and warehouse clubs has outperformed the Zacks Consensus Estimate by 6.7%, on average, in the trailing four quarters. The company is slated to report results on Nov 14. You can see the complete list of today’s Zacks #1 Rank stocks here.
Another promising option is Ross Stores, Inc. (ROST - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +4.03%. The Zacks Consensus Estimate for its third-quarter fiscal 2019 earnings is pegged at 97 cents, suggesting an increase of 6.6% from the year-ago period. This operator of off-price retail apparel and home fashion stores has outperformed the Zacks Consensus Estimate by 2.5%, on average, in the trailing four quarters. The company is slated to announce results on Nov 21.
You may also consider discount retailer Dollar General Corporation (DG - Free Report) . The stock has a Zacks Rank #2 and an Earnings ESP of +2.34%. The Zacks Consensus Estimate for its third-quarter fiscal 2019 earnings is pegged at $1.38, calling for growth of 9.5% from the year-ago figure. The company has beat the Zacks Consensus Estimate by 3.6%, on average, in the last four quarters. The company is scheduled to report results on Dec 5.
Foot Locker, Inc. (FL - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +0.64%. The Zacks Consensus Estimate for its third-quarter fiscal 2019 earnings is pegged at $1.07, indicating a year-over-year improvement of 12.6%. This athletic shoes and apparel retailer has surpassed the Zacks Consensus Estimate by 2.6%, on average, in the trailing four quarters. The company is scheduled to report results on Nov 22.
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