Though the earnings season has reached its tail end, the main chunk of releases from the Retail-Wholesale sector is yet to come. This time the season has been quite different for retailers. The space has been hit hard by the coronavirus-induced stay-at-home orders, social distancing and some mandatory store closures. As a result, U.S. retail sales witnessed a record decline for the second consecutive month in April. Per the Commerce Department retail sales in April fell 16.4%, following a decline of 8.3% in March.
Per the latest Zacks Earnings Preview report, the sector is anticipated to witness top-line growth of 5% this earnings season, down from an improvement of 7.2% in the last reporting cycle. Again, the bottom line is expected to plunge 21%, following an increase of one percentage point in the preceding season.
Here’s How the Quarter Shaped Up
The quarter that commenced on an upbeat note took a nasty turn with the rapid spread of the COVID-19 pandemic. We note that prolonged store closures, supply-chain disruptions, lower traffic trends and limited store operating hours in wake of the biological catastrophe COVID-19 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.
Further, a paradigm shift in consumers buying behavior has been noticed due to the pandemic. People have been shopping for essential items rather than making discretionary purchases. There has been an increased demand for grocery, packaged water, hand sanitizers, tissue paper, cleaning wipes, infant supplies and related staples.
No wonder, players such as Target (TGT - Free Report) , Costco (COST - Free Report) and Walmart (WMT - Free Report) dealing in food 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 initiatives might come as a relief 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.
4 Prominent Picks
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.
Investors can 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 +4.52%. 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 can see the complete list of today’s Zacks #1 Rank stocks here.
Dollar General Corporation (DG - Free Report) with a Zacks Rank #3 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 before the market opens.
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.
Lowe's Companies, Inc. (LOW - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +3.33%. The Zacks Consensus Estimate for first-quarter fiscal 2020 earnings is pegged at $1.30, suggesting an improvement of 6.6% from the prior-year period. Notably, this home improvement retailer has outperformed the Zacks Consensus Estimate in the trailing three quarters. The company is slated to report financial numbers on May 20 before the market opens.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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