Major Retail Stocks' Q4 Earnings On Mar 1: LOW, DLTR & BBY

We are in the last leg of the fourth quarter earnings season with focus mainly shifting on to the Retail sector. The earnings scenario in the quarter has been pretty impressive than the past few quarters. Further, investors are impressed as the quarter is set to break the past quarterly records, marking the best performance in the last two years.

Per the Earnings Preview as of Feb 17, 2017, earnings for the total S&P 500 companies will improve 7.4% from the year-ago period, with total revenue rising 3.9%.

As per the report, out of the 411 S&P 500 companies that have come up with their quarterly numbers, approximately 68.9% posted positive earnings surprises, while 54.7% beat top-line expectations. Total earnings for these index members were up 8% from the year-ago quarter, while revenues increased 4.9%.

According to the report, total earnings for the Retail-Wholesale sector are expected to decline marginally by 1.2%, while revenues are projected to improve 4.7%. As of Feb 17, 46.5% of the S&P 500 companies in this sector have reported their results. Out of these, 55.0% companies posted an earnings beat, while 20.0% surpassed revenue estimates.

Let’s see what awaits the following major retail stocks that are queued up for earnings release on Mar 1.

Lowe's Companies, Inc. (NYSE:LOW) , the world’s second-largest home improvement retailer, is slated to report fourth-quarter fiscal 2016 results, before the market opens. The company has missed the Zacks Consensus Estimate in the last two quarters. Further, it has posted an average miss of 2.4% in the trailing four quarters.

Our proven model does not conclusively show that Lowe’s is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Lowe’s has an Earnings ESP of -1.27%. This is because the Most Accurate estimate of 78 cents stands below the Zacks Consensus Estimate of 79 cents. However, the company’s Zacks Rank #3 increases the predictive power of ESP, but we need to have a positive ESP in order to be confident about earnings surprise.

Lowe’s has been posting lower-than-expected top and bottom lines for the past two consecutive quarters. We believe that an improving job scenario, gradual recovery in the housing market and merchandising initiatives bode well for Lowe’s over the long run. Additionally, the Canadian business has been performing quite well, with strong comps growth (in local currency) recorded in the last three years. However, analysts state that the company’s expansion into regions where it already operates could cannibalize its sales performance and lower traffic count at existing stores. (Read more: Lowe's to Post Q4 Earnings: What's in the Cards?)

Now, let’s take a sneak peek at Dollar Tree, Inc. (NASDAQ:DLTR) , the discount-store chain operator, which is set to report fourth-quarter fiscal 2016 results. The company posted a positive earnings surprise of 2.5% in the third quarter. Further, it has surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 2.4%.

Dollar Tree has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.33. The company carries a Zacks Rank #3. While a favorable Zacks Rank increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Dollar Tree is progressing well with its growth initiatives, which include store expansion strategies, enhancing store productivity, tapping new markets and incorporating innovative sales channels. Notably, the company had also displayed remarkable comparable-store sales (comps) performance, thereby recording its 35th straight quarter of comps growth in the third quarter.

While the incorporation of Family Dollar is expected to generate synergies in the long run, the increased costs and cannibalization will likely continue, affecting results throughout the integration and re-banner process. Additionally, foreign currency headwinds remain a concern. (Read more: What to Expect When Dollar Tree Reports Q4 Earnings?)

Finally, let’s see what’s in store for Best Buy Co., Inc. (NYSE:BBY) , a multinational specialty retailer, which is slated to report fourth-quarter fiscal 2017 results. We note that the company has outperformed the Zacks Consensus Estimate in all of the trailing four quarters, with an average earnings beat of 25.7%.

Best Buy has an Earnings ESP of +1.81% as the Most Accurate estimate stands at $1.69, while the Zacks Consensus Estimate is pegged at $1.66. Further, the company carries a Zacks Rank #3. The above combination makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy has been posting better-than-expected results in the last 16 quarters and the trend is expected to continue in fourth-quarter fiscal 2017 as well. In fact, in the past few quarters, the company had also reported massive gain in online comparable sales on the back of improved traffic, conversion rates and higher average order values, which is in turn expected to boost the company’s results in the to-be-reported quarter. (Read more: Will Best Buy Stock Gain Post Q4 Earnings Release?)

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