5 Retail Stocks Likely To Top Earnings Estimates

The earnings season, which is nearing its end, has been quite impressive this time around. However, the show is not over yet. With several retail behemoths including Walmart (NYSE:WMT), Macy’s and Target, queued up to report their quarterly numbers, investors are likely to keep their eyes on the Retail-Wholesale sector's progress card.

We note that the sector has gained 4.7% in a month, outdoing the S&P 500’s 2.1% growth. This can be attributable to a number of micro and macro factors, which have been viewed as positive signals for retailers’ upcoming results.

Retail on Growth Trajectory: Here’s Why

The recent uptick in consumer spending, which accounts for more than two-thirds of economic activity, bodes well. Incidentally, consumer spending inched up 0.4% in March, following 0.2% growth in January while remaining flat in February. This renewed momentum in March emerged from continued rise in income, indicating that consumers may drive economic growth in 2018. In fact, March retail sales advanced 0.6%, bearing testimony to this.

Apart from this, the sector is poised to gain from massive tax cuts and a robust labor market. Notably, the unemployment level that remained stable at 4.1% for six months till March, declined even further to 3.9% in April.

Turning to micro factors, companies in this space are also expected to gain from aggressive omni-channel efforts to keep pace with the changing consumer shopping patterns. To this end, retail players’ solid e-commerce endeavors, compelling pricing strategy, promotional activities, and efforts to strengthen portfolio and enhancing stores experience remain major drivers.

Surely, these strategic investments are eating a portion of margins but retailers are playing smart by undertaking stringent cost-cutting and restructuring activities.

Notably, total earnings of the S&P 500 retailers that have already reported results increased 26.1%, on the back of 14.9% jump in revenues, per the latest Earnings Preview. Well, about half of the retailers in the S&P 500 index released their quarterly outcomes, with 68.4% topping bottom-line estimates and 63.2% delivering positive revenue surprise.

Given the favorable backdrop, the sector is likely to catch investors’ attention. So, picking stocks that are likely to trump estimates can fetch handsome returns. This is because a stock generally picks up steam on earnings beat.

Picking the Prospective Winners for the Season

That said, let’s take a look at some gems in this space that look promising on the earnings front. These stocks carry a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. Well, our research shows that chances of a positive earnings surprise of stocks with this combination is as high as 70%. Clearly, adding these potential winners is the one of the best investment strategies.

5 Retailers Poised to Beat Expectations

The Kroger (NYSE:KR) Co. (KR), one of the largest grocery retailers, is a solid bet. The stock carries a Zacks Rank #3 and has an Earnings ESP of +4.99%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Zacks Consensus Estimate for first-quarter fiscal 2018 is pegged at 64 cents per share, reflecting year-over-year growth of 10.3%. Further, this estimate has gone up in the past 30 days. This Cincinnati, OH-based company delivered an average positive earnings surprise of 2.3% in the trailing four quarters. Its long-term earnings growth rate is 5.9%. The company is slated to report results on Jun 21.

Investors can also count on Macy's (NYSE:M), Inc. (M), one of the leading department store retailers in the United States. The company has an Earnings ESP of +4.50% and a Zacks Rank #3.

The Zacks Consensus Estimate for first-quarter fiscal 2018 is pegged at 40 cents, which shows significant growth from the year-ago period. Also, this estimate has risen 4 cents from 36 cents over the past 30 days. This Cincinnati, OH-based company has registered positive earnings surprise in the past three quarters and has a long-term earnings growth rate of 8.5%. The company is scheduled to report results on May 16.

We also suggest investing in Dollar General Corp. (DG), one of the largest discount retailers in the United States. The company has a Zacks Rank #2 and an Earnings ESP of +1.38%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..

The Zacks Consensus Estimate for first-quarter fiscal 2018 is pegged at $1.40 per share, reflecting year-over-year growth of 35.9% and an uptrend in the past 30 days. This Goodlettsville, TN-based company delivered in-line earnings in the last reported quarter, while it topped the consensus mark in the preceding three quarters. The company with a long-term earnings growth rate of 14.6% is expected to report results on Jun 7.

Ross Stores (NASDAQ:ROST), Inc. (ROST), an off-price retailer of apparel and home accessories in the United States, also looks promising. The company carries a Zacks Rank #3 and has an Earnings ESP of +0.94%. The Zacks Consensus Estimate for first-quarter fiscal 2018 is pegged at $1.06 per share, reflecting year-over-year growth of 29.3%.

Estimates for the quarter have remained stable in the past 30 days. This Pleasanton, CA-based company registered average positive earnings surprise of 6.1% in the trailing four quarters and has a long-term earnings growth rate of 10%. The company is slated to report results on May 24.

Last but not least, Urban Outfitters Inc (NASDAQ:URBN). (URBN) has a Zacks Rank #2 and an Earnings ESP of +1.72%. The Zacks Consensus Estimate for first-quarter fiscal 2018 is pegged at 30 cents a share, reflecting year-over-year increase of more than 100%. Notably, the consensus mark also rose a notch from 29 cents in the past 30 days. This Philadelphia, PA-based lifestyle specialty retailer, which offers fashion apparel and accessories, footwear, home décor and gifts products, has registered an average positive earnings surprise of 8.5% in the trailing four quarters. The company has a long-term earnings growth rate of 12%. It is scheduled to report results on May 22.

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