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5 Solid Retail Stocks Likely to Beat this Earnings Season


With the earnings season at centre stage, investors are on the lookout for companies that can beat their earnings estimates. While many sectors have already seen over half their companies report earnings, most retailers are yet to come out with their results this season.
 
Though change is the only constant in the stock market, not much about the economic scenario has altered since the last quarter, which bore the brunt of foreign currency headwinds, weakness in the energy sector and other global worries. These factors, along with slow consumer traffic largely impacted the Retail/Wholesale sector as well, which commenced 2016 with soft sales through March.
 
Further, the recent data compiled by the Conference Board reveals that the Consumer Confidence Index, which had improved to 96.1 March, slipped to 94.2 in April. Also, the gross domestic product (GDP) for the first quarter of 2016 improved only 0.5%, against a 1.4% rise witnessed in the preceding quarter, per the Bureau of Economic Analysis.
 
While these factors are likely to leave any investor perplexed, they shouldn’t lose hope as there are a number of bright spots which can bring their cheer back.
 
Notably, the earnings season hasn’t been so bad thus far, implying that either investors were expecting results even weaker than this or the estimates for most companies was already lowered to easy-to-beat levels. Per the latest Earnings Trend Report (as of Apr 29, 2016), out of the S&P 500 Retail/Wholesale companies that have already reported their quarterly results, 84.6% beat earnings and 61.5% surpassed revenue estimates.
 
Also, a gradual recovery in the housing market and the manufacturing sector, coupled with an improving labor market, is playing a major role in lifting buyers’ confidence.
 
That said, we bring to you five retail stocks that may show promise even amid a not-so-congenial economic scenario, based on their favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP.
 
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. It makes sense to add these potential winners to your portfolio ahead of their releases. A rational investment can fetch higher returns on the heels of an earnings beat.
 
5 Solid Picks
 
The five stocks mentioned below not only meet the prescribed criteria, but have also convincingly beaten earnings estimates in the trailing four quarters. They hold excellent prospects and are therefore well positioned for future earnings growth.
 
Investors can count on ULTA Salon, Cosmetics & Fragrance Inc. (ULTA), a specialty retailer offering cosmetics, fragrance, haircare, skincare, bath and body products, and salon styling tools in the U.S., with a Zacks Rank #1 and an Earnings ESP of +0.78%. The current Zacks Consensus Estimate for first-quarter fiscal 2016 stands at $1.29 per share, reflecting 24.4% growth from the year-ago period. This Bolingbrook, IL-based company registered an average positive earnings surprise of 7.7% over the trailing four quarters, and has a long-term earnings growth rate of 19.5%. The company is scheduled to report results on May 26.
 
We also suggest investing in Red Robin Gourmet Burgers Inc. (RRGB), which is a full-service casual dining restaurant chain, with a Zacks Rank #3. The stock currently has a long-term earnings growth rate of 21.1% and an Earnings ESP of +0.91%. The current Zacks Consensus Estimate for first-quarter 2016 is pegged at $1.10. This Greenwood Village, CO-based company delivered an average earnings beat of 10.8% over the trailing four quarters, with a positive surprise in each quarter. The company is expected to report results on May 17.
 
The Wendy's Company (WEN), one of the leading quick-service restaurant companies, with a Zacks Rank #2 and an Earnings ESP of +16.67%, is also a good bet. The current Zacks Consensus Estimate for the first quarter of fiscal 2016 stands at 6 cents per share. This Dublin, Ohio-based company registered an average positive earnings surprise of 7.6% over the trailing four quarters, and has a long-term earnings growth rate of 15.1%. The company is slated to report results on May 11.
 
International specialty retailer and distributor of professional beauty supplies– Sally Beauty Holdings Inc. (SBH) is another solid pick. The stock carries a Zacks Rank #2 and has an Earnings ESP of +7.32%. The current Zacks Consensus Estimate for the second quarter of fiscal 2016 (ended Mar 31, 2016) stands at 41 cents. This Denton, Texas-based company has a long-term earnings growth rate of 9.5%. The company is slated to report results on May 5.
 
Last but not the least is The TJX Companies, Inc. (TJX), one of the leading off-price retailers of apparel and home fashions in  the U.S. and worldwide, flaunting a Zacks Rank #2 and an Earnings ESP of +1.43%. The current Zacks Consensus Estimate for first-quarter fiscal 2017 is pegged at 70 cents a share. This Framingham, MA-based retailer registered an average positive earnings surprise of 4.4% over the trailing four quarters, and has a long-term earnings growth rate of 11.1%. The company is scheduled to report results on May 17.
 
Bottom Line
 
Instead of being a silent spectator, a prudent investor should rather be a front-runner and identify stocks that can outperform even amid not so pleasant market conditions. We believe that the aforementioned stocks fit the criteria, given their strong fundamentals and growth prospects.
 
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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
 
ULTA SALON COSM (ULTA): Free Stock Analysis Report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
WENDYS CO/THE (WEN): Free Stock Analysis Report
 
SALLY BEAUTY CO (SBH): Free Stock Analysis Report
 
TJX COS INC NEW (TJX): Free Stock Analysis Report
 
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