This time the earnings season has been quite different for the Retail-Wholesale sector, owing to the coronavirus pandemic that brought economic activities to a standstill, which led to job losses and pay cuts. Consequently, this resulted in sinking consumer confidence and dwindling household income, which severely impacted spending activities and has taken a toll on retailers.
The quarter that commenced on an upbeat note took a nasty turn with the rapid spread of the novel coronavirus. Per the latest Zacks Earnings Preview report, the sector is anticipated to witness top-line growth of 6.6% this earnings season, down from 8.3% increase registered in the last reporting cycle. Again, the bottom line is expected to plunge 20.1%, following an increase of one percentage point in the preceding season.
Facts to Know
We note that prolonged store closures, supply-chain disruptions, lower traffic trends and limited store operating hours in the wake of the pandemic are likely to have hurt revenues of quite a few players. Further, the rising macroeconomic uncertainties and bare minimum revenue prospects compelled companies to call-off their guidance.
Obviously, with no or minimum revenue generation, maintaining liquidity amid the crisis became a herculean task for a number of industry participants. Retailers have been taking every step — from pay cut to furloughing, from inventory reductions to lowering capital expenditures and from suspending share repurchases and dividend payments to drawing credit lines — in order improve financial flexibility and preserve cash flow.
In spite of these measures, retailers look helpless when it comes to revenues. U.S. retail and food services sales in March fell 8.7%, following a decline of 0.4% in February. Sales collapsed across a range of categories from Motor vehicles and parts dealers to Furniture & home furnishing stores and from Gasoline stations to Clothing & clothing accessories stores.
However, there were still certain groups that recorded decent numbers. These include Health & personal care stores, Food & beverage stores and General merchandise stores. In fact, a paradigm shift in consumer shopping behavior was noticed as essential items were preferred over discretionary purchases.
No wonder, players such as Target (TGT - Free Report) , Costco (COST - Free Report) and Walmart (WMT - Free Report) dealing in foods and other household products are likely to have benefited from consumers’ panic buying owing to the coronavirus outbreak. Moreover, as people work from home and maintain social distancing, companies have been focusing on bolstering omni-channel operations and ramping up delivery services or curbside pickup.
Well these may sound soothing but are they enough to alleviate the pressure on margins. Industry experts pointed that investments in pay and benefits for frontline team members, shift in channel mix toward digital fulfillment, transition toward lower-margin categories, and decline in higher-margin discretionary items’ sales are expected to have hurt margins.
Nonetheless, market pundits believe that once the coronavirus spread is contained and vaccine discovered, the retail sector, which touches every sphere of our life, is likely to witness a sharp rebound. Even now there are stocks that could be a great addition to your portfolio.
We have identified four 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.
4 Prominent Picks
SpartanNash Company (SPTN - Free Report) deserves a mention. The stock has a Zacks Rank #1 and an Earnings ESP of +64.60%. The Zacks Consensus Estimate for first-quarter 2020 earnings is pegged at 38 cents, suggesting an improvement of 58.3% from the prior-year quarter. Notably, this distributor and retailer of grocery products has outperformed the Zacks Consensus Estimate in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dollar General Corporation (DG - Free Report) with a Zacks Rank #2 and an Earnings ESP of +1.25% is worth betting on. The Zacks Consensus Estimate for first-quarter fiscal 2020 earnings is pegged at $1.67, suggesting growth of 12.8% from the prior-year quarter. This discount retailer has a trailing four-quarter positive earnings surprise of 5.9%, on average. The company is slated to announce results on May 28.
Investors can even count on The Kroger Co. (KR - Free Report) , operator of supermarkets and multi-department stores, with a Zacks Rank #2 and an Earnings ESP of +8.48%. The Zacks Consensus Estimate for first-quarter fiscal 2020 earnings is pegged at 89 cents, indicating an improvement of 23.6% from the year-ago period. The company has a trailing four-quarter positive earnings surprise of 2.1%, on average.
You may consider Big Lots, Inc. (BIG - Free Report) , a broadline closeout retailer. The stock has a Zacks Rank #3 and an Earnings ESP of +18.72%. The Zacks Consensus Estimate for first-quarter fiscal 2020 earnings is pegged at 35 cents. The company has a trailing four-quarter positive earnings surprise of 18.7%, on average.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>