Retail is the only major sector in which a few big corporates are yet to declare results this reporting cycle. Despite several microeconomic, macroeconomic and geopolitical headwinds, third-quarter earnings were not as weak as expected initially. However, overall earnings are still expected to dip.
At present, total third-quarter earnings for the S&P 500 Index are expected to be down 1.8% from the prior-year period while revenues are expected to increase 4.3%. This indicates improvement from an earnings decline of 5% on 4.2% higher revenues, expected at the beginning of the reporting cycle.
Retail Sales in Q3
Overall retail sales in the third quarter of 2019 were mixed. In the first two months of the period, retail sales grew 0.8% and 0.6%, respectively. However, in September, retail sales declined 0.3%. In fact, a decline was noted for the first time since February.
Core retail sales in September (excluding automobiles, gasoline, building materials and food service) decreased 0.1% against an increase of 0.2% in August. However, year over year, retail sales increased 4.1% in September.
Meanwhile, U.S. consumer spending remained firm and is driving the country's GDP. In the third quarter of 2019, the U.S. economy grew 2.1%, surpassing the consensus estimate of 1.6%, primarily buoyed by a 2.9% increase in consumer spending. Household spending rose a seasonally adjusted 0.2% in September from August.
Additionally, after a slump in September, retail sales picked up in October, rising 0.3% and beating the consensus estimate of growth of 0.2%.
4 Retailers Poised to Beat Earnings Estimates
Below are four stocks set to beat earnings estimates this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. Each of our picks carries either a Zacks Rank # 1 or 2 and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows price performance of our four picks year to date.
RH RH operates as a retailer in the home furnishings space. It offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings. This Zacks Rank #1 company has an Earnings ESP of +0.14% for the third quarter of fiscal 2019 (ended October 2019).
RH has an expected earnings growth rate of 27.1% for the current year (ending Jan 2020). The Zacks Consensus Estimate for the current year improved 0.4% over the last 30 days. The company delivered positive earnings surprise in the last four quarters, with the average being 20.2%. RH is slated to release earnings on Dec 4, after the closing bell.
Dollar General Corp. DG is one of the largest discount retailers in the United States. It provides various merchandise products in the southern, southwestern, Midwestern and eastern regions. The Zacks Rank #2 company has an Earnings ESP of +1.23% for the third quarter of fiscal 2019 (ended October 2019).
Dollar General has an expected earnings growth rate of 10.7% for the current year (ending Jan 2020). The company delivered positive earnings surprise in three out of the last four quarters, with an average beat of 3.6%. Dollar General is scheduled to release earnings on Dec 5, before the opening bell.
Costco Wholesale Corp. COST operates membership warehouses in the United States, Puerto Rico, Canada, the U.K., Mexico, Japan, Korea, Australia, Spain, France, Iceland, China and Taiwan. It offers branded and private-label products in a range of merchandise categories. The Zacks Rank #2 company has an Earnings ESP of +1.01% for the first quarter of fiscal 2020 (ended November 2019).
Costco Wholesale has an expected earnings growth rate of 4.5% for the current year (ending Aug 2020). The Zacks Consensus Estimate for the current year increased 0.2% over the last 30 days. The company delivered positive earnings surprise in three out of the last four quarters, with the average beat being 7.2%. Costco Wholesale is set to release earnings on Dec 12, after the closing bell.
CarMax Inc. KMX operates as a retailer of used vehicles in the United States. It operates in two segments, CarMax Sales Operations and CarMax Auto Finance. The Zacks Rank #2 company has an Earnings ESP of +0.50% for the third quarter of fiscal 2020 (ended November 2019).
CarMax has an expected earnings growth rate of 10.4% for the current year (ending Feb 2020). The company delivered positive earnings surprise in the last four quarters, with the average being 7.1%. CarMax is due to release earnings on Dec 20.
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