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5 Retail Stocks Set to Pull Off a Beat This Earnings Season

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In spite of pandemic-induced challenges, the Retail – Wholesale sector is likely to reflect all-around strength this earnings season, thanks to the stimulus package, stepped-up vaccinations and resumption of business activities. A rebounding economy with more people returning to workplaces and households sitting on a large pile of savings are likely to have resulted in higher spending, thereby fueling demand across a diverse set of categories.

While inventory management, supply chain enhancement and cost structure realignment have been part & parcel of business strategies, investment to accelerate digitization gained precedence amid the pandemic. The reporting cycle is expected to reflect gains from constant omni-channel initiatives, brand introduction, store expansion and remodeling, and efforts to enhance delivery services.

However, we note that industry participants that have been gaining amid the pandemic-led increased at-home consumption and stock hoarding are likely to have witnessed some pullback in demand.

Nonetheless, keeping consumers’ product preferences retailers have been replenishing shelves with in-demand merchandise. Companies have been emphasizing on membership programs, upgradation of store technology, shopping via mobile app and last mile delivery solutions. Expedited delivery services like doorstep delivery, curbside pickup or buy online and pick up at store as well as contactless payment gateway have been aiding in maximizing share of customers’ wallet.

While aforementioned factors raise optimism about the outcome of the results, margins remain an area to watch. Impact of investments to increase teams’ pay and benefits, and expenses on additional safety and cleansing measures due to the coronavirus pandemic on margins cannot be ruled out. Apart from these, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing expenses might have weighed on margins.

Making the Perfect Choice

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.

Per the latest Zacks Earnings Preview, the Retail-Wholesale sector is anticipated to witness top-line growth of 12.3%, following an increase of 14.6% in the preceding season. Again, the bottom line is expected to jump 38.3% this earnings season, following growth of 96.2% in the last reporting cycle.

5 Prominent Picks

Target Corporation (TGT - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +0.62%, is a solid bet. The Zacks Consensus Estimate for its second-quarter fiscal 2021 earnings is pegged at $3.37. The consensus mark for earnings has moved up by a penny in the past 30 days. This general merchandise retailer has a trailing four-quarter earnings surprise of 62.1%, on average. Target has been deploying resources to enhance omni-channel capabilities, come up with new brands, refurbish stores and expand same-day delivery options to provide seamless shopping experience. These are likely to have contributed to the quarterly performance. The company is slated to announce results on Aug 18. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation Price, Consensus and EPS Surprise

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

DICK'S Sporting Goods, Inc. (DKS - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +1.66%, is worth betting on. The Zacks Consensus Estimate for its second-quarter fiscal 2021 earnings is pegged at $2.65. The consensus estimate for earnings has increased 1.9% over the past seven days. The company has a trailing four-quarter earnings surprise of 136.8%, on average. DICK’S Sporting Goods sound fundamentals and growth efforts look impressive. Diverse category portfolio, supply chain enhancement, technology advancement and omni-channel capabilities have been aiding this sporting goods retailer to capitalize on robust consumer demand across golf, outdoor activities, home fitness and active lifestyle. The company is slated to report results on Aug 25.

DICKS Sporting Goods, Inc. Price, Consensus and EPS Surprise

DICKS Sporting Goods, Inc. Price, Consensus and EPS Surprise

DICKS Sporting Goods, Inc. price-consensus-eps-surprise-chart | DICKS Sporting Goods, Inc. Quote

Investors can even count on Ulta Beauty, Inc. (ULTA - Free Report) , a retailer of beauty products, with a Zacks Rank #2 and an Earnings ESP of +7.01%. The Zacks Consensus Estimate for its second-quarter fiscal 2021 earnings has improved by a penny to $2.22 in the past 30 days. The company has a trailing four-quarter earnings surprise of 200.6%, on average. Ulta Beauty remains well placed for recovery in the beauty space, thanks to its differentiated model and endeavors to build important guest connections. The company has been seeing market share gains in major beauty categories for a while now, with skincare standing out. The company’s initiatives to boost online promotions and customer engagement have been supporting online sales growth. The company is scheduled to announce results on Aug 25.

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. Price, Consensus and EPS Surprise

Ulta Beauty Inc. price-consensus-eps-surprise-chart | Ulta Beauty Inc. Quote

You may consider The Gap, Inc. (GPS - Free Report) , retailer of clothing, accessories and personal care products. The stock has a Zacks Rank #3 and an Earnings ESP of +53.66%. The Zacks Consensus Estimate for its second-quarter fiscal 2021 earnings has been stable at 41 cents in the past 30 days. The company has a trailing four-quarter earnings surprise of 659.4%, on average. Gap’s online sales have been increasing, courtesy of omni-channel capabilities, including curbside pick-up and ship-from-store. Continued growth in e-commerce business has been contributing to the company’s consolidated sales as well as gains in its Gap, Old Navy and Athleta brands. The company launched its native Android app in March, which has been gaining traction.

The Gap, Inc. Price, Consensus and EPS Surprise

The Gap, Inc. Price, Consensus and EPS Surprise

The Gap, Inc. price-consensus-eps-surprise-chart | The Gap, Inc. Quote

Costco Wholesale Corporation (COST - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +1.07%. The Zacks Consensus Estimate for its fourth-quarter fiscal 2021 earnings is pegged at $3.41. The consensus mark for earnings has increased 0.9% in the past seven days. The company has a trailing four-quarter earnings surprise of 7.7%, on average. Costco continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. Its growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. Cumulatively, these factors have been aiding in registering impressive sales numbers. The company is scheduled to report results on Sep 23.