5 Apparel Stocks Looking to Beat on Earnings in Q4
The fourth-quarter 2017 reporting cycle is at the half-way mark, providing a robust picture of all-around strength and momentum. We have positive earnings and sales surprises coming from an above-average proportion of companies. Further, positive estimate revisions for the current quarter have been overwhelming, indicating there is more room for growth in the future.
Our focus here will be on the Retail-Apparel & Shoes industry, a key segment of the Retail-Wholesale sector, which is presumed to be invariably in business. The retail sector on the whole has been attracting attention as the robust holiday numbers and a favorable economic backdrop have turned it around. The sector is gaining from favorable economic data including a steady improvement in wages, a lower unemployment rate, rising consumer confidence and modest inflation, all of which contributed to increased consumer spending during the holiday period.
A prime beneficiary of this momentum has been the Apparel industry, which has performed well lately thanks to the rapid transformation in the space. The industry players are driven by the quick adoption of the omni-channel retailing concept, renewed store formats and focus on providing the most fashionable and in-trend merchandise. Additionally, the companies are benefiting from effective inventory management and cost control techniques.
Overall, the industry’s growth graph shows a gain of 19.1% in the last three months, significantly outpacing the S&P 500’s growth of just 6.7%. Further, the industry is placed at the top 21% (53 of 256) of the Zacks Industry Rank.
Q4 Earnings Scorecard
Looking at the earnings scorecard of the overall S&P 500 index so far, about half have released fourth-quarter earnings results. Total earnings for these companies were up 16%, on 10.5% revenue growth. Further, about 80.5% delivered positive earnings surprises and about 78.1% beat revenue estimates. The blended beat ratio (companies beating both earnings and revenues) so far has been 64.9%.
Total fourth-quarter earnings for the S&P 500 are expected to increase 13% year over year, with a 7.7% rise in revenues. This follows 6.7% earnings growth and 5.9% revenue increases recorded in the third quarter.
For the retail sector, earnings in the fourth quarter are expected to improve 6.6%, with 8.8% revenue growth. However, it is too early to predict anything for the sector as it has a sizable chunk of earnings yet to be reported.
The real picture of the trend so far is visible from our latest Earnings Preview report published on Feb 2.
That said, here are five stocks from the Apparel and Shoes industry that may show promise based on their favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. It makes sense to add these potential winners to your portfolio ahead of their releases. A rational investment can fetch higher returns on the heels of an earnings beat.
Our Picks
We have highlighted five stocks that not only meet the prescribed criteria but have also convincingly surpassed earnings estimates in the trailing four quarters, hold excellent prospects and are therefore well positioned for future earnings growth.
You can see the complete list of today’s Zacks #1 Rank stocks here.
American Eagle Outfitters Inc. AEO, a specialty retailer of casual apparel, accessories and footwear for men and women, is a solid bet. The stock carries a Zacks Rank #2 and has an Earnings ESP of +0.17%. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The current Zacks Consensus Estimate for fourth-quarter fiscal 2017 is pegged at 44 cents per share, reflecting year-over-year growth of 12.8%. Further, the estimate for the quarter under review has been stable in the last 30 days. This Pittsburgh, PA-based company delivered an average positive earnings surprise of 2.6% in the trailing four quarters, and has a long-term earnings growth rate of 5.5%. The company is scheduled to report results on Mar 8.
We also suggest investing in Foot Locker Inc. FL, a retailer of athletic shoes and apparel. The company has a Zacks Rank #2, a long-term earnings growth rate of 5% and an Earnings ESP of +2.26%. The current Zacks Consensus Estimate for fourth-quarter fiscal 2017 is pegged at $1.24 per share, reflecting an uptrend in the last 30 days. This New York-based company delivered an average positive earnings surprise of 8.8% in the preceding quarter. The company is slated to report results on Feb 23.
Investors can also count on Urban Outfitters Inc. URBN, a lifestyle specialty retailer of fashion apparel and accessories, footwear, home décor and gifts products. The company has an Earnings ESP of +0.14% and a Zacks Rank #3.
The current Zacks Consensus Estimate for fourth-quarter fiscal 2018 is pegged at 62 cents, which has been stable in the last 30 days. Further, it reflects growth of 12.7% from the prior-year quarter. This Philadelphia, PA-based company registered average positive earnings surprise of 5.7% in the trailing four quarters, and has a long-term earnings growth rate of 12%. The company is expected to report results on Mar 6.
Tilly's, Inc. TLYS, a retailer of casual apparel, footwear and accessories for young men and women, boys and girls in the United States, also holds promise. The company carries a Zacks Rank #2 and an Earnings ESP of +1.35%. The current Zacks Consensus Estimate for fourth-quarter fiscal 2017 is pegged at 25 cents per share, reflecting year-over-year growth of 13.6%. The estimate for the quarter has witnessed an uptrend in the last 30 days. This Irvine, CA-based company registered an average positive earnings surprise of 64.4% in the trailing four quarters. The company is expected to report results on Mar 12.
Last but not least is Fossil Group Inc. FOSL, with a Zacks Rank #3 and an Earnings ESP of +19.68%. The current Zacks Consensus Estimate for fourth-quarter 2018 is pegged at 38 cents a share. This Richardson, TX-based designer and manufacturer of clothing and accessories has registered an average positive earnings surprise of 23% in the trailing four quarters, and has a long-term earnings growth rate of 5%. The company is expected to report results on Feb 13.
Bottom Line
We believe the above stocks with strong fundamentals and growth prospects are capable of meeting investor expectations. Your portfolio’s chance of giving higher returns increases if you have a favorably ranked stock powered by the optimism of an earnings beat in the upcoming quarter.
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Fossil Group, Inc. (FOSL) : Free Stock Analysis Report
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
Foot Locker, Inc. (FL) : Free Stock Analysis Report
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Tilly's, Inc. (TLYS) : Free Stock Analysis Report
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