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4 Retail Stocks to Avoid in Q1 Earnings Despite Sales Pickup

March shone bright on renewed consumer spending, reversing the three-quarter spell of declines with a sharp uptick in retail sales. The Commerce Department said that U.S. retail and food services sales advanced 0.6% to $494.6 billion last month, following a respective decline of 0.1% and 0.2% in February and January. Consumer outlays rose on the back of a strengthening labor market, tax reform and rising income.

This definitely brings good tidings for investors who closely track the Retail-Wholesale sector. Analysts pointed that the sales pickup may not enhance retailers' first-quarter performance much but it definitely indicates that Americans are more confident now. Certainly, this positive sentiment is likely to translate into higher consumer spending - one of the pivotal factors driving the economy.

Given the favorable backdrop, the sector is likely to catch investors' attention this reporting cycle. Markedly, the sector is anticipated to witness year-over-year earnings growth of 12%, per the latest Earnings Outlook . This shows a significant improvement from the previous quarter's earnings growth of 3%. The top line is also projected to increase 7.6% compared with 9.7% in the preceding quarter.

So, picking stocks that are likely to trump estimates can fetch handsome returns for investors. This is because a stock generally picks up steam on an earnings beat. On the flip side, not all retail companies are going to beat or meet expectations. There will be some slow coaches. Apparently, dodging stocks with lower earnings beat predictability will definitely minimize the risks to your portfolio.

We can identify the probable underperformers before they report by combining our proprietary Zack Rank and Earnings ESP system. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter . Our research shows that stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) along with a negative Earnings ESP have a very slim chance of outperforming estimates.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Give These 4 Stocks a Miss

O'Reilly Automotive, Inc.ORLY , which has a Zacks Rank #4 and an Earnings ESP of -1.06%, does not deserve to be in your list. This specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories is scheduled to report first-quarter 2018 results on Apr 25.

We also advise you to stay away from GameStop Corp.GME , a multichannel video game, consumer electronics, and wireless services retailer. The stock holds a Zacks Rank #4 and has an Earnings ESP of -8.92%. The company is expected to report first-quarter fiscal 2018 results on May 24.

L Brands, Inc.LB is another stock to shun. This retailer of women's intimate and other apparel, beauty and personal care products holds a Zacks Rank #5 and an Earnings ESP of -5.96%. The company is expected to come up with first-quarter fiscal 2018 results on May 16.

We also expect you to keep distance from The Michaels Companies, Inc.MIK , which has a Zacks Rank #5 and an Earnings ESP of -3.62%. The operator of arts and crafts specialty retail stores is likely to report first-quarter fiscal 2018 numbers on Jun 5.

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O'Reilly Automotive, Inc. (ORLY): Free Stock Analysis Report

L Brands, Inc. (LB): Free Stock Analysis Report

GameStop Corp. (GME): Free Stock Analysis Report

The Michaels Companies, Inc. (MIK): 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 Nasdaq, Inc.


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

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