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4 Discount Retailers With a Winning Edge This Earnings Season

Sumit Singh

The earnings season has reached its pinnacle but the main chunk of releases from the Retail-Wholesale sector is yet to come. In the past few days, several bigwigs — including Tapestry TPR, Capri Holdings CPRI and Sally Beauty SBH — reported results. In the next few days, a number of retailers, including the Discount Store operators, are going to report their quarterly numbers.

Certainly, discount retailers have succeeded in creating a niche despite the rising popularity of online retailers that has compelled many traditional operators to exit. This has been primarily supported by investments, focus on cost savings and introduction of loyalty and marketing programs. Results for this earnings season are expected to reflect gains from constant omnichannel initiatives, brand introduction, store expansion and remodeling, and efforts to enhance delivery services.
Additionally, efficient pricing actions, improved checkouts and mobile point-of-sale capabilities enable the industry players to engage better with customers. Notably, a conducive consumer environment has also favored the industry participants. Per the Conference Board, the consumer confidence index jumped to 131.6 in January from 128.2 in December. Moreover, a strengthening labor market and rising disposable income have been fueling consumers’ spending activity. According to the Labor Department, the United States added 225,000 jobs in the month of January.

These favorable factors paint a rosy picture for a number of industry participants this reporting cycle, which coincides with the holiday season. As companies try all means to gain market share, costs associated with promotional activities and an aggressive pricing strategy have been eating into margins. Meanwhile, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses are other bottlenecks. The bottom line is likely to show a cumulative impact of these factors.

Here we have identified four discount retailers with the help of Zacks Stock Screener, which are poised to beat the Zacks Consensus Estimate this earnings season. Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), 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.

4 Prominent Picks

You may consider Burlington Stores, Inc. BURL, a retailer of branded apparel products. The stock has a Zacks Rank #2 and an Earnings ESP of +0.36%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 earnings is pegged at $3.21, suggesting growth of 13.4% from the year-ago figure. The company has a trailing four-quarter positive earnings surprise of 7.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation COST with a Zacks Rank #2 and an Earnings ESP of +0.64% is worth betting on. The Zacks Consensus Estimate for earnings for the to-be-reported quarter is pegged at $2.06, suggesting growth of 2.5% from the prior-year quarter. This operator of membership warehouses has a trailing four-quarter positive earnings surprise of 7.8%, on average. The company is slated to announce results on Mar 5.

Ross Stores, Inc. ROST also deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +0.09%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 earnings is pegged at $1.26, indicating an improvement of 5% from the prior-year quarter. This off-price retailer of apparel and home accessories has a trailing four-quarter positive earnings surprise of 3.8%, on average. The company is slated to announce results on Mar 3.

Another worthwhile option is Dollar Tree, Inc. DLTR with a Zacks Rank #3 and an Earnings ESP of +1.00%. The Zacks Consensus Estimate for fourth-quarter fiscal 2019 is pegged at $1.75. This operator of discount stores has a trailing four-quarter positive earnings surprise of 1.2%, on average.

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