The earnings season has reached its pinnacle but a chunk of Retail-Wholesale sector releases are still awaited. The sector comprises of apparel & shoes, discount and department stores, e-commerce players and retail pharmacy to name a few.
Per the latest Earnings Outlook, the sector is anticipated to witness top-line growth of 7.6% with bottom line expected to remain flat year over year. The earnings season has witnessed releases from about 36% of the retail companies in the S&P 500 cohort.
For the companies that have reported results so far, total earnings increased 3.9% on 10% higher revenues. We note 64.3% of the companies have been successful in beating earnings, and revenue estimates.
Factors Shaping the Outcome
A buoyant consumer environment and strategic endeavors undertaken at the company level are working in favor of the sector. It goes without saying that the sector’s prospects are closely tied to the purchasing power of consumers. In fact, strengthening labor market, improved consumer confidence and rising disposable income are conducive to higher consumer spending. An uptick in this metric is always welcome news for retailers.
Notably, retailers are also making prudent investments, focusing on cost savings and constantly revisiting their loyalty and marketing programs to engage better with customers. These apart, enhancement of omni-channel capacities, introduction of new brands and refurbishment of stores have also been playing crucial roles. Simultaneously, the companies are investing in renovations and improved checkouts and mobile point-of-sale capabilities to make stores attractive.
These efforts have been aiding the top-line performance for quite some time now, and the to-be-reported quarter is not likely to be an exception. However, one cannot ignore the fact that the sector has turned highly competitive with the increasing dominance of e-commerce players on account of consumers growing preference for online shopping. This has compelled a number of brick-and-mortar players to strengthen their digital ecosystem and bolster shipping and delivery capabilities.
While these endeavors drive sales, they entail high costs. Continued investments in innovation, data and analytics, and new capabilities to speed up the digital transformation results in higher operating costs. Additionally, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses are concerns. Margins will remain one of the key areas to watch out for this earnings season.
Likely Winners for the Season
All said, we used the Zacks methodology and identified retail stocks that not only boast solid fundamentals but are also poised to beat earnings estimates this reporting cycle. Our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, 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.
3 Prominent Picks
JD.com, Inc. JD with a Zacks Rank #2 and an Earnings ESP of +17.86%, deserves a place in your portfolio. The Zacks Consensus Estimate for the second quarter of 2019 is pegged at 9 cents, indicating an improvement from 5 cents reported in the year-ago period. The company, which operates as an e-commerce company and retail infrastructure service provider, has outperformed the Zacks Consensus Estimate by a wide margin in the past three quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
JD.com, Inc. Price, Consensus and EPS Surprise
JD.com, Inc. price-consensus-eps-surprise-chart | JD.com, Inc. Quote
CVS Health Corporation CVS is a solid bet with a long-term earnings growth rate of 6.5%. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $1.70, which is penny above the prior-year quarter reported figure. The company is slated to report second-quarter 2019 results on Aug 7. The provider of health services and plans, has an Earnings ESP of +9.89% and a Zacks Rank #3. The company has an average positive earnings surprise of 4.4% in the trailing four quarters.
CVS Health Corporation Price, Consensus and EPS Surprise
CVS Health Corporation price-consensus-eps-surprise-chart | CVS Health Corporation Quote
Another lucrative option is Pinduoduo Inc. PDD, which operates an e-commerce platform. The stock has a Zacks Rank #3 and an Earnings ESP of +28.57%. The Zacks Consensus Estimate for the second quarter of 2019 is pegged at a loss of 21 cents, which is a penny wider from the year-ago period reported figure.
Pinduoduo Inc. Sponsored ADR Price, Consensus and EPS Surprise
Pinduoduo Inc. Sponsored ADR price-consensus-eps-surprise-chart | Pinduoduo Inc. Sponsored ADR Quote
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