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4 Discount Retail Stocks Set to Win This Earnings Season

Zacks Equity Research

We are nearing the final innings of the second-quarter 2019 earnings season, wherein more than half of the Retail-Wholesale sector stocks are lined up to report.

Here, we focus on the Retail - Discount Stores industry which comprises companies offering apparel, accessories, footwear, beauty products, personal and baby care products, cleaning products, pet supplies, and food and beverage products.

The prospects the Discount stores are closely linked to a positive consumer environment, with a stable job market, higher income and improved consumer confidence. Additionally, the unique off-price model of discount stores plays a key role in the prosperity of the industry. Players are gaining strength from efforts to grab a bigger share on attributes such as price, products and speed to market.

Moreover, these companies remain focused on building omni-channel capabilities, with a focus on store remodels and technological updates. The companies are also undertaking initiatives to boost shipping and delivery capabilities in the face of fierce competition from Amazon AMZN. These efforts have been driving the top and bottom lines of the industry players for quite some time now and the to-be-reported quarter is unlikely to be an exception.

However, the troubles of the industry players with regard to increased domestic freight, shrink, as well as distribution and occupancy expenses, in addition to increased markdowns, continue to play spoilsport. Also, higher costs incurred on initiatives related to store expansion, digital growth and improving store productivity are likely to deter operating margin growth in the upcoming quarterly release. Additionally, a potential increase in trade tariffs due to the U.S.-China trade war might affect near-term results of some companies in this industry.

Despite these odds, the stocks in the Retail - Discount Stores industry have shown resilience in the year-to-date period. The industry has surged 24.1% in this period compared with the broader sector’s rally of 14.8% and the S&P 500 Index’s growth of 13.7%. Further, the industry is placed among the top 25% out of more than 250 Zacks industries.



In a nutshell, notable progress on these productivity enhancement initiatives by players and a positive economic backdrop makes this industry attractive this earnings season.

Q2 Expectations

The Retail – Discount Stores industry, which is part of the Zacks Retail-Wholesale sector, seems poised for continued growth in the second quarter of 2019. According to the latest Earnings Outlook, the Retail-Wholesale sector’s aggregate second-quarter EPS is expected to increase 1%, with revenues anticipated to witness 7.7% growth.

On that note, we bring to you four stocks from the Zacks Retail – Discount Stores industry that may show promise based on their favorable Zacks Rank and positive Earnings ESP. Our research shows that stocks, with a combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, have as high as 70% chance of delivering a positive earnings surprise. It makes sense to add these potential winners to your portfolio, ahead of their releases. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our Picks

Target Corporation TGT operates as a general merchandise retailer in the United States. It provides household essentials, electronics, toys, apparel, food and pet supplies, home furnishings and décor, home improvement, automotive products, and seasonal merchandise. The company delivered average positive earnings surprise of 2.6% in the trailing four quarters. The Zacks Consensus Estimate for the company’s second-quarter fiscal 2019 earnings is pegged at $1.61 per share, suggesting growth of 9.5% from the year-ago reported quarter. This Minneapolis, MN-based company is likely to report earnings on Aug 21. The company has an Earnings ESP of +1.04% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores Inc. BURL, a retailer of branded apparel products in the United States, is a solid bet. It offers fashionable merchandise like women's ready-to-wear apparel, accessories, footwear, menswear, youth apparel, coats, toys, gifts, baby, home and beauty products. This Burlington, NJ-based company currently has a Zacks Rank #2 and an Earnings ESP of +0.35%. It delivered average positive earnings surprise of 8.7% in the trailing four quarters. The Zacks Consensus Estimate for the company’s earnings in second-quarter fiscal 2019 is pegged at $1.15 per share, suggesting flat earnings with the prior-year quarter.

Ross Stores Inc. ROST is an off-price retailer of apparel and home accessories, primarily in the United States. The company primarily offers apparel, accessories, footwear and home fashions. Currently, it has an Earnings ESP of +1.79% and a Zacks Rank #3. The Zacks Consensus Estimate for the company’s second-quarter fiscal 2019 earnings is pegged at $1.12 per share, suggesting growth of 7.7% from the year-ago reported quarter. This Pleasanton, CA-based company delivered average positive earnings surprise of 2.8% in the last four quarters. The company is scheduled to report earnings on Aug 22.

Costco Wholesale Corporation COST sells high volumes of food and general merchandise (including household products and appliances) at discounted prices through membership warehouses. It is one of the largest warehouse club operators in the United States. It currently carries a Zacks Rank #3 and an Earnings ESP of +0.79%. The Zacks Consensus Estimate for the company’s fourth-quarter fiscal 2019 earnings is pegged at $2.53 per share, indicating growth of 7.2% from the year-ago reported figure. This Issaquah, WA-based company delivered average positive earnings surprise of nearly 6% in the trailing four quarters.

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