Retail winners during the Holiday Season - Earnings ESP

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Retail winners during the Holiday Season
Holiday season has already kicked off with Thanksgiving, Black Friday and hot Cyber Monday deals. Taking a cue from 2012 holiday season, retailers are leaving no stone unturned to woo consumers this time as well. Early-hour store openings, huge discounts, promotional activities and free shipping for online purchases are on the cards for both brick-and-mortar as well as e-commerce retailers. However, this might hurt margins and in turn the fourth-quarter earnings.

On Market Front

The overall scenario doesn't seem too convincing as of now with the Federal Reserve continuing with its $85 billion monthly stimulus program to keep interest rates low and boost economic growth. The Dow Jones Industrial Average lost 77.64 points (or 0.48%) yesterday before closing at 16,008.77. The Standard & Poor's 500 Index shed 4.91 points (or 0.27%) to finish the trading session at 1,800.90. The Nasdaq Composite Index fell 14.63 points (or 0.36%) to end the day at 4,045.26.

The economic data has not yet reached the central bank's desired level. Unemployment rate is currently hovering at around 7.3%, which is still well above the Fed's target. Further, consumer confidence appears to have taken a hit as a result of the political impasse in Washington DC. The Conference Board's Consumer Confidence Index fell drastically to 70.4 in Nov 2013, following a sharp dip to 72.4 in October.

Retailers need to be 'hawk-eyed' this holiday season to make the most of it. They need to grab every opportunity as and when they come, and try all means to drive in cautious, budget-constrained consumers to the shop as the season may be a tough one.

On Retail Front

Interestingly, the current situation as of now seems to be a mixed one on the retail front. According to National Retail Federation (NRF), the survey performed by Prosper Insights & Analytics revealed that sales on the Thanksgiving weekend dropped 2.7% to $57.4 billion from $59.1 billion in the year-ago period. However, according to ShopperTrak, retail sales at bricks-and-mortar outlets rose 2.3% to $12.3 billion on Thanksgiving and Black Friday. This leading provider of shopper analytics also disclosed that retail sales on Black Friday alone plunged 13.2%, while foot traffic declined 11.4%. Analysts believe that Thanksgiving Day attracted some sales from Black Friday due to the early offerings of best deals.

On the contrary, online spending is making headway, helped by tech-savvy consumers buying best online deals through their smartphones, tablets and computers. The data compiled by NRF suggested that average online spending increased 3% to $177.7 from the corresponding period last year. As indicated by comScore, Black Friday witnessed online retail spending of $1,198 million, up 15%; whereas Thanksgiving Day saw a 21% jump in online spending to $766 million.

As per comScore, online sales are projected to touch $2 billion mark on "Cyber Monday". A surge in e-shopping will definitely benefit online retailers as well as brick-and-mortar chains that have well knitted their online and in-store operations.

Consumer spending is a primary component of the economy, and the way consumers behave during the holiday season will give a rough idea to investors about the health of the U.S. economy. The political tussle and the 16-day partial U.S. government shutdown, uneven economic recovery, and soft job opportunities are keeping investors jittery.

Amid such a scenario, NRF is anticipating consolidated sales for November and December to grow approximately 3.9% to $602.1 billion. Data compiled by ShopperTrak suggest that retail sales are projected to increase 2.4% this holiday season. However, the expected growth rate has tempered down from 3% registered in 2012, 4% in 2011 and 3.8% in 2010, hinting at a stiff competition.

Retail Still a Lucrative Investment Opportunity

Banking on its wide spectrum, the Retail/Wholesale sector still remains a lucrative investment opportunity for investors. A reflection of that is evident from the SPDR S&P Retail ETF (XRT) and Market Vectors Retail ETF (RTH) surging roughly 40.5% and 37.1% year-to-date, respectively, outperforming the S&P 500 that has gained 23.1% so far this year.
Thus, identifying the future winners from the sector would be a prudent idea to make an investment decision.

The Future Winners among the Crowd

Picking the best stocks from the Retail/Wholesale space for one's portfolio is a fairly simple task. One way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank - Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) - and a positive Zacks Earnings ESP .

Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement.

For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season:

Five Below, Inc. ( FIVE ) is a Zacks Rank #2 stock having an Earnings ESP of +25.00%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is 4 cents a share, portraying a 44.4% surge from the prior-year period. This Philadelphia, Pennsylvania based specialty value retailer had registered an average positive earnings surprise of 62.5% over the trailing four quarters, and has a long-term earnings expectation of 33.7%. The company is scheduled to report on Dec 5, 2013.

The Kroger Co. ( KR ) is a Zacks Rank #3 stock with an Earnings ESP of +1.89%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is pegged at 53 cents a share, reflecting an increase of 15.2% year over year. This Cincinnati, Ohio based retail food and multi-department store operator had registered an average positive earnings surprise of 9.7% over the trailing four quarters, and has a long-term earnings expectation of 7.3%. The company is slated to report results on Dec 5, 2013.

American Eagle Outfitters, Inc. ( AEO ) is a Zacks Rank #3 stock and has an Earnings ESP of +5.56%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is 18 cents a share. This Pittsburgh, Pennsylvania based apparel and accessories retailer had registered an average positive earnings surprise of 5.5% over the trailing four quarters, and has a long-term earnings expectation of 9.4%. The company will report on Dec 6, 2013.

Bottom Line

We believe that the above stocks that boast strong fundamentals and growth prospects are capable of quenching investors' search for the market winners. As the U.S. stocks look for a survival strategy, a sneak peek into the space for some possible outperformers backed by a favorable Zacks Rank and a positive Zacks Earnings ESP could be handy for investors.


AMER EAGLE OUTF (AEO): Free Stock Analysis Report

FIVE BELOW INC (FIVE): Free Stock Analysis Report

KROGER CO (KR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Earnings

Referenced Stocks: AEO , FIVE , NRF , RTH , XRT

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