The earnings season has reached its pinnacle but the main chunk of releases from the Retail-Wholesale sector is yet to come. Notably, a conducive consumer environment and endeavors undertaken at company levels has kept the sector afloat this earnings season. Also, a strengthening labor market and rising disposable income have been fueling consumers’ spending activity.
The sector’s quarterly reports are likely to reflect benefits from constant omnichannel initiatives, brand introduction, store expansion and remodeling, and efforts to enhance delivery services. Additionally, efficient pricing actions, marketing and loyalty programs, improved checkouts and mobile point-of-sale capabilities enable the industry players to engage better with customers.
These favorable factors paint a rosy picture for a number of industry participants this reporting cycle, which coincides with the holiday season. A report from National Retail Federation indicates that holiday retail sales, excluding automobile dealers, gasoline stations and restaurants, increased 4.1% year over year during 2019. Evidently, this is likely to reflect on the companies’ top-line numbers. Per the latest Zacks Earnings Outlook, the sector is anticipated to witness top-line growth of 6.7% this earnings season.
As companies try all means to gain market share during the busiest part of the year, costs associated with promotional activities and an aggressive pricing strategy have been eating into margins. Meanwhile, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses are other bottlenecks. The bottom line is likely to show a cumulative impact of these factors. The latest Zacks Earnings Outlook shows that the sector’s bottom line is expected to decline 1.8%.
All said, let’s look for retail-wholesale stocks that are likely to trump estimates this earnings season. 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.
5 Prominent Picks
You may consider Zumiez Inc. (ZUMZ - Free Report) , a specialty retailer of apparel, footwear and accessories. The stock has a Zacks Rank #1 and an Earnings ESP of +0.24%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 earnings is pegged at $1.36, suggesting growth of 15.3% from the year-ago figure. The company has a trailing four-quarter positive earnings surprise of 64.1%, on average. The company is slated to announce results on Mar 12. You can see the complete list of today’s Zacks #1 Rank stocks here.
Costco Wholesale Corporation (COST - Free Report) with a Zacks Rank #2 and an Earnings ESP of +0.64% is worth betting on. The Zacks Consensus Estimate for earnings for the to-be-reported quarter is pegged at $2.06, suggesting growth of 2.5% from the prior-year quarter. This operator of membership warehouses has a trailing four-quarter positive earnings surprise of 7.8%, on average. The company is slated to announce results on Mar 5.
Investors can even count on The Gap, Inc. (GPS - Free Report) , a clothing and accessories retailer, with a Zacks Rank #3 and an Earnings ESP of +3.41%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 earnings is pegged at 40 cents. The company has registered positive earnings surprise in the last two reported quarters. The company is slated to announce results on Feb 27.
Another worthwhile option is Dollar Tree, Inc. (DLTR - Free Report) with a Zacks Rank #3 and an Earnings ESP of +1.78%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 is pegged at $1.76. This operator of discount stores has a trailing four-quarter positive earnings surprise of 1.2%, on average.
Lithia Motors, Inc. (LAD - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +9.83%. The Zacks Consensus Estimate for fourth-quarter 2019 earnings is pegged at $3.08, indicating an improvement of 19.8% from the prior-year quarter. This automotive retailer has a trailing four-quarter positive earnings surprise of 7.6%, on average. The company is slated to announce results on Feb 12.
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