Stocks in the Retail-Wholesale sector are deemed to have been the worst hit by the coronavirus outbreak, with store closures enforced around the middle of March across several nations to curb the spread of the virus. This is likely to have dealt a severe blow to the top and bottom lines of retailers in the first quarter (three months ended Apr 30 for most retailers).
Looking at the broader perspective of the situation, we note that retailers selling non-essentials, including apparel retailers, department store operators and luxury chains, have been witnessing huge declines in demand. Consequently, retail sales for discretionary items fell significantly in March and April. However, retailers that are selling essential goods, medicines and food benefited from the rising stock-piling trend witnessed in March to prepare for an extended stay at home. However, the trend normalized in April, resulting in slowed sales for grocery retailers.
As replication of the trend, we have seen strong top-line numbers coming from essential goods retail chains like Walmart WMT and Home Depot HD in the past few days. However, costs associated with the COVID-19 outbreak, including increased hourly pay to associates along with costs incurred to ensure safety and sanitization partly affected the operating income of the companies. This weighed on the bottom lines of the retailers to some extent.
On the flip side, apparel retailers like Urban Outfitters URBN posted disappointing sales and earnings, mainly hurt by store closures and softer demand amid the coronavirus outbreak.
Moreover, highlighting the dramatic decline in consumer spending activities in the past two months, U.S. retail sales witnessed a record decline for the second consecutive month in April and lagged analysts’ expectations. Retail sales for April 2020 declined 16.4% from March and 21.6% from April 2019. Additionally, retail sales for the period between February and April 2020 (the first quarter) declined 7.7% year over year.
However, the retail bellwethers have shown great spirit to not only serve customers but also communities at this time. Retailers have been innovative and experimental in reaching out to customers by the rapid expansion of e-commerce portals, diverting inventory toward online fulfillments, converting stores to distribution centers to quickly meet online demand, and providing curbside pick-ups, among others. The efforts have gone a long way in improving online penetration for many companies, thus, cushioning the top line that was otherwise hit hard by store closures.
Additionally, the companies’ efforts to combat the rising costs amid the coronavirus outbreak through employee furloughs, cutting on discretionary spending, postponing capital spending on non-essential projects, and suspending share repurchases and dividends, are likely to be aid financial strength. Thus, the overall picture of the retail sector remains mixed ahead of first-quarter earnings. Notably, the sector is currently ranked among the bottom 38% of the 16 Zacks sectors.
That said, let’s take a look at three Retail-Wholesale stocks, which are scheduled to report results on May 21. Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) the chance of a positive earnings surprise is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy Co., Inc. BBY has withdrawn its guidance for first-quarter and fiscal 2021 in response to the rising uncertainties related to the coronavirus pandemic. The company’s stores have remained closed since mid-March. Further, all in-home installation and repair works are suspended for the time being, while in-home consultations are being conducted virtually. However, in the latest release, management informed that it is looking to resume in-home services in the near term and re-open stores when it is safe.
Nevertheless, the company’s efforts to enhance curbside service, enabling customers to continue purchasing items online or via app, are likely to have cushioned sales amid the crisis. In its latest release, Best Buy issued sales data, stating it was able to retain about 70% of sales compared to the last fiscal year, owing to its robust curbside service model, while all its stores are shuttered.
Best Buy Co., Inc. Price and EPS Surprise
Best Buy Co., Inc. price-eps-surprise | Best Buy Co., Inc. Quote
Its domestic online sales grew more than 250%. Although sales for the nine-week period, ending Apr 4, fell nearly 5% year over year, quarterly sales through Mar 20 surpassed expectations and increased roughly 4%. In the eight-day period ending Mar 20, its top line rose 25% on higher demand for products that people require to work or learn from home. Although the company is still witnessing increasing demand for these and gaming products, sales tumbled nearly 30% year over year between Mar 21 and Apr 11.
Our proven model does not conclusively predict an earnings beat for Best Buy in first-quarter fiscal 2021. The company has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%. (Read More: Here's How Best Buy is Poised Ahead of Q1 Earnings)
Ross Stores, Inc. ROST has kept all its stores closed for an indefinite period since Mar 20 in response to the coronavirus outbreak, which is likely to have a bearing on its top and bottom lines in first-quarter fiscal 2020. Moreover, the company withdrew its top and bottom-line guidance for the first quarter and fiscal 2020 in response to the outbreak and its unpredictable impacts.
However, the solid execution of the company’s off-price strategy is expected to have boosted top and bottom lines before the impacts of the coronavirus outbreak surfaced in the quarter under review. Also, its commitment toward pricing, merchandise initiatives, cost containment and store expansion bode well.
Ross Stores, Inc. Price and EPS Surprise
Ross Stores, Inc. price-eps-surprise | Ross Stores, Inc. Quote
Our proven model does not conclusively predict an earnings beat for Ross Stores this time around. The company has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -319.70%. (Read More: What's in the Offing for Ross Stores in Q1 Earnings?)
The TJX Companies, Inc. TJX shut down stores across the United States, Canada, Europe and Australia, among others, effective Mar 19. Moreover, management earlier stated that the company’s online business via tjmaxx.com, marshalls.com and sierra.com have been non-operational due to the outbreak. We believe that the impact of the pandemic is likely to get reflected in the company’s first-quarter fiscal 2021 results.
In a recent press release, management also highlighted that the company will support store employees with two weeks of pay amid the coronavirus outbreak-led store closures.
The TJX Companies, Inc. Price and EPS Surprise
The TJX Companies, Inc. price-eps-surprise | The TJX Companies, Inc. Quote
Our proven model does not conclusively predict an earnings beat for TJX Companies this time around. The company has a Zacks Rank #5 and an Earnings ESP of -60.82%. (Read More: Things to Note Ahead of TJX Companies' Q1 Earnings)
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
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
The Home Depot, Inc. (HD) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
Ross Stores, Inc. (ROST) : Free Stock Analysis Report
Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
The TJX Companies, Inc. (TJX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research