The earnings season has so far been eclipsed by the impacts of COVID-19. Sluggish economic activities compelled many companies to adopt pay cuts and curb employment, which in turn affected consumers spending ability and built pressure on retailers.
Nevertheless, the situation gradually improved for players in the sector as lockdown restrictions eased and business activities resumed. Consequently, retail sales jumped 18.2% in May, recovering from the substantial plunge of 14.7% in April. Moreover, decisions taken by the Trump administration to provide enhanced unemployment benefits to individuals helped a lot in restoring consumer spending. The trend continued as retail sales improved 8.4% in June and 1.2% in July. While essentials and other household products remain the preference, fashion and leisure items also found space in the shopping list.
No wonder, consumers shopping patterns were seen to have altered amid the pandemic. With people maintaining social distancing, they prefer online transactions. Therefore, companies are directing resources toward advancing omni-channel capabilities and ramping up delivery services or curbside pickup to enhance engagement with customers.
While these trends might sound somewhat assuring, margins remain an area to watch out for when the companies report. Industry experts pointed out that investments in pay and benefits, shift in channel mix toward digital fulfillment, transition toward lower-margin categories and decline in higher-margin discretionary items’ sales are expected to have hurt margins.
Clearly, this earnings season for the retail sector highlights the various opportunities and challenges created by the pandemic. That said, let’s take a sneak peek into three stocks from the Retail-Wholesale sector that are slated to report second-quarter fiscal 2020 financial results on Aug 19.
Per the latest Earnings Preview, the sector’s bottom line is expected to plunge 18.6% this earnings season, following a decline of 20.2% in the last reporting cycle. Meanwhile, the sector is anticipated to witness top-line growth of 4.9% compared with an increase of 8.6% registered in the prior season.
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
What’s in the Cards for Target?
Target Corporation’s TGT top line is likely to have benefitted from coronavirus-led stockpiling, shift to food-at-home trend as well as solid contribution from digital channel. However, shifts in channel-mix are likely to have weighed on margins. The company currently carries a Zacks Rank #3 (Hold) and an Earnings ESP of +8.61%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for second-quarter fiscal 2020 revenues is pegged at $19,907 million, which indicates growth of 8.1% from the prior-year quarter’s figure. However, the bottom line of this general merchandise retailer is expected to decline year over year. Although the Zacks Consensus Estimate for earnings has risen by 9 cents to $1.56 in the past seven days, the figure suggests a decline of 14.3% from the year-ago quarter’s levels. Notably, the company has a trailing four-quarter earnings surprise of 14.4%, on average. (Read More: How is Target Poised Ahead of Q2 Earnings Release?)
Target Corporation Price, Consensus and EPS Surprise
Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote
Is a Beat in Store for Lowe’s?
Lowe's Companies, Inc. LOW currently carries a Zacks #3 and an Earnings ESP of +5.6%. The Zacks Consensus Estimate for fiscal second-quarter fiscal 2020 earnings has been revised 31 cents upward in the past seven days to $2.93 a share. The figure suggests nearly 36.3% growth from the year-ago quarter’s tally.
Moreover, the consensus mark for quarterly revenues is pegged at $24.5 billion that indicates a 16.8% rise from the prior-year quarter’s reported figure. We note that the home-improvement retailer has a trailing four-quarter earnings surprise of 13.1%, on average.
Performance is likely to have benefitted from investments in technology, impressive merchandise category and strength in the Pro business. Additionally, better process execution, cost containment and supply-chain transformation efforts have been catalysts. (Read More: Will Lowe's Retain Its Earnings Beat Streak in Q2?)
Lowes Companies, Inc. Price, Consensus and EPS Surprise
Lowes Companies, Inc. price-consensus-eps-surprise-chart | Lowes Companies, Inc. Quote
What’s in the Offing for TJX?
The TJX Companies, Inc. TJX is likely to post a decline in the top and the bottom line when it reports second-quarter fiscal 2021 numbers. The Zacks Consensus Estimate for its second-quarter loss is currently pegged at 9 cents per share. This suggests deterioration from earnings of 62 cents registered in the year-ago quarter. We note that this leading off-price retailer has a trailing four-quarter negative earnings surprise of 70.3%, on average. This Zacks Rank #4 (Sell) company has an Earnings ESP of +48.62%.
The consensus estimate for quarterly revenues is pegged at $6.75 billion, which suggests a decline of 31% from the prior-year quarter’s tally. (Read More: Here's How TJX Companies Looks Ahead of Q2 Earnings)
The TJX Companies, Inc. Price, Consensus and EPS Surprise
The TJX Companies, Inc. price-consensus-eps-surprise-chart | The TJX Companies, Inc. Quote
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Target Corporation (TGT) : Free Stock Analysis Report
The TJX Companies, Inc. (TJX) : Free Stock Analysis Report
Lowes Companies, Inc. (LOW) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research