We are at the tail end of the third-quarter earnings season as all sectors save retail have reported. The retail sector has seen about half of its total releases. Total earnings for the companies reported so far are up 37.5% on 10.7% revenue growth with 89.5% beating EPS estimates and 63.2% beating revenue estimates. While earnings and revenues growth is below the preceding quarter’s level, it compares favorably with historical periods.
The retail sector results reported so far were primarily from online vendors and restaurant players. The focus now shifts to traditional brick-and-mortar retailers like Macy’s (M – Free Report) , Nordstrom (JWN – Free Report) , Wal-Mart (WMT – Free Report) , Lowe’s (LOW – Free Report) and Target (TGT – Free Report) that are expected to report this week and the next. Stocks of most of these traditional operators have outperformed the broader market this year on favorable domestic consumer spending backdrop amid declining mall foot traffic and growing digital sales.
However, these stocks lost ground in the two-month period from mid-August to mid-October but shook off the October blues ahead of the broader market. As a result, retail ETFs – SPDR S&P Retail ETF (XRT – Free Report), VanEck Vectors Retail ETF (RTH – Free Report) and PowerShares Retail Fund (PMR – Free Report) – have gained 2.6%, 2.1%, and 4.8%, respectively, in the past month.
Given continued favorable trends in the broader economy, it is reasonable to be optimistic about earnings results from the above-mentioned traditional operators and their stock prices. These have the potential to push the abovementioned ETFs upward or downward.
According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases chances of an earnings beat. A Zacks Rank #4 or 5 (Sell rated) stock is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
