Department Store Stocks To Report Q1 Earnings: M, KSS, DDS

The Q1 earnings season is in its final phase with 87.2% of the S&P 500 companies having already reported their results as of May 6, 2016 (per the latest Zacks Earnings Trend). Notably, most of these companies delivered better-than-expected results. This is probably because estimates for this quarter had fallen to real low levels, owing to the global macroeconomic concerns.

Among the 16 Zacks sectors that have the most significant impact on the S&P 500 index, eight sectors including Basic Materials, Industrial Products, Energy and Conglomerates are expected to witness an earnings decline in Q1. On the other hand, earnings of the Retail/Wholesale sector are expected to dip 0.1%, whereas revenues are projected to increase 4.9%.

Per the latest report, out of 48.8% of the S&P 500 Retail stocks that have reported results so far, 81% beat earnings and 57.1% surpassed revenue estimates. Also, 6.2% of these companies saw their earnings improve year over year, while 10.9% witnessed revenue growth.

Let’s see what might be in store for these department store stocks when they release earnings results this week.

Macy's Inc. (NYSE:M) , one of the leading department store chains, is slated to report fiscal Q1 results on May 11. In the preceding two quarters, Macy's outperformed the Zacks Consensus Estimate.

Macy’s operates in the highly competitive retail merchandise sector. Moreover, aggressive pricing to fend off competition may weigh on margins in the quarter to be reported. Also, the dwindling top-line and bottom-line results of Macy’s remain the primary concern for investors.

A look at the company’s performance in fiscal 2015 unveils that net sales and earnings declined in all four quarters. A mature domestic market, lower tourist spending and cautious consumer spending continue to pose concerns.

Macy's carries a Zacks Rank #3 (Hold) and has an Earnings ESP of -13.89%. The Zacks Consensus Estimate for the quarter is pegged at 36 cents. (Read more: Can Macy's Keep Its Earnings Streak Alive in Q1?).

Kohl’s Corporation (NYSE:KSS) is set to report Q1 results before the opening bell on May 12. Last quarter, this specialty retailer posted a positive surprise of 1.94%. For Q1, the company expects a significant drop in gross margins as it plans to aggressively clear excessive merchandise that resulted from lower-than-expected fourth-quarter 2015 sales. SG&A expenses in Q1 are also expected to rise 3–4%, mainly due to higher advertising expenses.

Kohl’s remains cautious about its fiscal 2016 results and plans to close 18 stores after reporting weak fourth-quarter 2015 results, due to retail uncertainty as well as cautious spending by the U.S. consumers. The company is witnessing lower spending on apparel and accessories. A general slowdown in consumer spending is also hurting sales at department stores.

Kohl’s carries a Zacks Rank #3 and has an Earnings ESP of 0.00%. The Zacks Consensus Estimate for the quarter is pegged at 37 cents. (Read more: Will Lower Margins Dampen Kohl's Earnings in Q1?).

Dillard's Inc. (NYSE:DDS) is expected to report fiscal Q1 results on May 12. In the last quarter, the company delivered a negative earnings surprise of 11.8%. Also, this departmental store chain missed the Zacks Consensus Estimate in three of the last four quarters, with an average negative earnings surprise of 6.1%.

Dillard's repeated its dismal performance in fourth-quarter fiscal 2015 as both the top line and the bottom line of the company declined year over year. Also, earnings lagged expectations due to a fall in merchandise sales as well as gross margin contraction owing to higher markdowns. Management notes that sales weakness in energy producing regions and higher markdowns to revive sales persist as fiscal 2016 proceeds.

Though these factors keep us on the sidelines, we are impressed with the company’s focus on increasing productivity at existing stores, developing a leading omni-channel platform and enhancing its domestic operations to support results in the future.

Dillard's carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.00%. The Zacks Consensus Estimate for the quarter is pegged at $2.62. (Read more: Dillard's: Will Markdowns Weigh on Earnings in Q1?).

Stay Tuned! Check our full write-up on earnings releases of these stocks.