With the third-quarter earnings season now nearing its end, the focus has almost fully shifted to the Retail sector. Investors seem impressed with the improvement recorded by department store stocks this earnings season. These companies remain in the positive territory, buoyed by cost-cutting initiatives and leaner inventories. However, problems like shift of focus from store sales traffic to online sales pose a concern.
Per our Earnings Preview report as of Nov 11, earnings for the total S&P 500 companies will improve 3.4% from the year-ago period, with total revenue rising 1.5%.
As per the report, out of the 455 S&P 500 companies that have come up with their quarterly numbers, approximately 72.7% posted positive earnings surprises, while 55.4% beat top-line expectations. Total earnings for these index members were up 3.9% from the year-ago quarter, while revenues increased 2.7%.
The performance of the index is not restricted to a single sector, and of the 16 Zacks sectors, four are expected to witness an earnings decline in the third quarter. Of these, Auto, Oil/Energy and Transportation are likely to be a major drag. However, the Retail/Wholesale sector is witnessing a significant improvement.
Out of 43 retail companies, 24 have posted a positive earnings surprise of 54.2%, while 37.5% beat revenue expectations. While total earnings for these 24 retailers were up 12.7% from the year-ago quarter, revenues increased 8.6%.
Total earnings for the Retail/Wholesale sector are estimated to rise 5.9%, whereas revenues are projected to improve 5.2%. So, let's see what awaits the following retail stocks that are queued up for earnings releases on Nov 15.
The Home Depot, Inc.HD has surpassed the Zacks Consensus Estimate by an average of 4.2% in the trailing four quarters.
Our proven model does not conclusively show that the world's largest home improvement specialty retailer is likely to beat earnings estimates in third-quarter fiscal 2016. 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. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESPFilter .
HOME DEPOT Price and EPS Surprise
The company has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions. The current Zacks Consensus Estimate is pegged at $1.58.
Home Depot faces intense competition from specialty and mass retailers, which along with a soft economic recovery, may prove to be a deterrent by pushing back home improvement projects. Also, the company's significant exposure to international markets makes it vulnerable to adverse currency fluctuations, posing a concern. (Read more: Can Home Depot's Q3 Earnings Maintain Robust Trend? )
Another retail company, The TJX Companies, Inc.TJX has posted positive surprises in all of the trailing four quarters, with an average of 5.3%.
TJX COS INC NEW Price and EPS Surprise
This leading off-price retailer of apparel and home fashions currently has a Zacks Rank #3. However, its Earnings ESP of 0.00% makes surprise prediction difficult. The Zacks Consensus Estimate for third-quarter fiscal 2017 is pegged at 87 cents.
The company has reported positive comparable-store sales growth over the past 29 quarters, supported by higher traffic. Its fresh collection and widespread sourcing machinery has helped it maintain a loyal customer base. However, the company is expected to witness a dip in margins due to higher wages paid to laborers as announced earlier in fiscal 2016. (Read more: TJX Companies Q3 Earnings: What's in the Cards? )
Next, let's take a sneak peek at Dick's Sporting Goods Inc.DKS , which has surpassed the Zacks Consensus Estimate by an average of 4.7% in the trailing four quarters.
DICKS SPRTG GDS Price and EPS Surprise
This sporting goods retailer has an Earnings ESP of 0.00%, with both the Most Accurate Estimate and the Zacks Consensus Estimate pegged at 42 cents. It carries a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .
While a favorable Zacks Rank increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
Dick's Sporting has been gaining from the expansion of its omni-channel network, and powerful marketing and merchandising strategies. Also, its customer-oriented strategies, store growth plans and healthy financial status bode well. However, management expects to witness some near-term pressure, owing to the major liquidation going on in the sporting goods space, which may impact its third-quarter fiscal 2016 results. (Read more: Is Dick's Sporting Likely to Gain Post Q3 Earnings? )
Finally, Sally Beauty Holdings Inc.SBH , an international specialty retailer and distributor of professional beauty supplies, has surpassed the Zacks Consensus Estimate by an average of 4.8% in the trailing four quarters. Our proven model does not conclusively show that Sally Beauty is likely to beat earnings estimates in fourth-quarter fiscal 2016.
SALLY BEAUTY CO Price and EPS Surprise
The company has an Earnings ESP of -2.38% as the Most Accurate estimate stands at 41 cents while the Zacks Consensus Estimate is pegged at 42 cents. Also, the company carries a Zacks Rank #4.
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