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Discount Retail Stocks Earnings Preview: TGT, TJX & More

Zacks Equity Research

The earnings season is gradually nearing its end, with roughly 91% of the S&P 500 companies having already announced their results. Per the latest Zacks Earnings Trends report as of Aug 10, out of the 454 S&P 500 members that have come up with their quarterly numbers, approximately 71.1% have posted positive earnings surprises, while 52.9% beat top-line expectations.

According to the report, earnings for the 454 S&P 500 companies are down 3.7% from the same period last year, while revenues have dropped 0.7%. Although the bulk of earnings releases have already come from different sectors, most retailers are yet to post their financial results. Hence, investors are keeping their fingers crossed for the outcome.

The report further highlights that total earnings for the Retail/Wholesale sector are expected to increase 2.3%, while revenues are anticipated to jump 4.8%. As of Aug 10, 50% of the total number of S&P 500 companies in this sector have reported their results, wherein 45.5% delivered an earnings beat and about 18.2% cruised ahead of revenue estimates. While earnings grew 8.1% year over year, revenues improved 8.7%.

Let us focus on Discount Retail stocks, which form part of the Retail/Wholesale sector. Among Discount Retail stocks lined up to report, here’s a sneak peek at four companies.

Target Corp. TGT is slated to release second-quarter 2016 results on Aug 17. We believe that Target’s series of initiatives, such as the development of omni-channel capacities, diversification and localization of assortments, along with emphasis on smaller format stores, may help augment its performance in the quarter to be reported. The company plans to expand its merchandise assortments, with special focus on the well-performing categories like Style, Baby, Kids and Wellness. Moreover, management is keen on expanding the Food category. Target has also adopted an aggressive cost reduction strategy. However, the competitive retail landscape and lower discretionary spending may weigh upon its performance.

Management had earlier projected adjusted earnings in the band of $1.00 to $1.20 per share for the second quarter. Comparable sales are anticipated to be flat to down 2% during the quarter.

TARGET CORP Price, Consensus and EPS Surprise

TARGET CORP Price, Consensus and EPS Surprise | TARGET CORP Quote

Our proven model does not conclusively show that Target is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Target has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at $1.13. The company carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult. In the trailing four quarters, this operator of general merchandise stores outperformed the Zacks Consensus Estimate by an average of 4%. (Read: Target Q2 Earnings: Can the Stock Pull a Surprise?)

Ross Stores Inc. ROST is slated to release second-quarter fiscal 2016 results on Aug 18. Ross Stores sustained focus on merchandise, store expansion, extensive collection of brand bargains, and cost controls may favorably impact the quarter to be reported. For the second quarter, the company expects earnings in the range of 64–67 cents per share compared with 63 cents earned in the prior-year quarter. Total sales are expected to increase 4–5%, with comps expected to be up 1–2%. However, stiff competition and challenges related to strong comparisons may impact the results. (Read: Will Ross Stores Deliver Another Earnings Beat in Q2?)

ROSS STORES Price, Consensus and EPS Surprise

ROSS STORES Price, Consensus and EPS Surprise | ROSS STORES Quote

Ross Stores has an Earnings ESP of 0.00% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter currently stands at 67 cents. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 2.7%.

The TJX Companies, Inc. TJX, an off-price apparel and home fashions retailer, is slated to report second-quarter fiscal 2017 results on Aug 16. TJX wide array of products, aggressive store opening strategy, enhancement of E-commerce platform and solid marketing initiatives bode well. This is quite evident from the company’s comparable-store sales growth in the past 29 quarters. However, aggressive pricing strategy to gain and retain its market share from other discount retailers may hurt its margins. Management had earlier projected adjusted earnings in the band of 77–79 cents a share for the second quarter. Comparable sales are anticipated to increase in the range of 2–3% during the second quarter. (Read: TJX Companies Q2 Earnings: A Surprise in the Cards?)

TJX COS INC NEW Price, Consensus and EPS Surprise

TJX COS INC NEW Price, Consensus and EPS Surprise | TJX COS INC NEW Quote

The company has an Earnings ESP of +1.25% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is currently pegged at 80 cents. In the trailing four quarters, the company beat the Zacks Consensus Estimate by an average of 5.4%.

Tuesday Morning Corporation TUES is scheduled to report fourth-quarter fiscal 2016 results on Aug 19. This off-price retailer has an Earnings ESP of 0.00% and a Zacks Rank #2. The Zacks Consensus Estimate for the quarter currently stands at a loss of 12 cents. In the trailing four quarters, the company underperformed the Zacks Consensus Estimate by an average of 62.8%.

TUESDAY MORNING Price, Consensus and EPS Surprise

TUESDAY MORNING Price, Consensus and EPS Surprise | TUESDAY MORNING Quote

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