Though we are past the peak of the earnings season, a significant number of releases from the Retail-Wholesale sector are in the cards. This reporting cycle, a glimpse into the sector's performance, suggests a probable upswing in both sales and earnings. The outcomes are poised to be shaped by prevailing consumer sentiments, spending trends and the pressing challenge of input costs.

Key Influencing Factors

Undeniably, the industry’s prospects are correlated with the purchasing power of consumers. Consumer spending, a key catalyst for the economy, has shown resilience, underpinned by a decent labor market and wage gains. With worries about an imminent recession subsiding, there has been a revival in consumer confidence.

The Commerce Department reported a sequential increase of 0.7% in U.S. retail and food services sales for September, reaching a total of $704.9 billion. This followed a revised reading of a 0.8% increase registered in August. Impressively, September retail sales rose 3.8% from the year-ago period.

No doubt, inflation and a higher interest rate environment have been subjects of concern across various sectors, including retail. Rising cost pressure, wage increases and higher promotional activities have put margins in the spotlight. This has spurred retailers into action, who are re-engaging with their customer base, recalibrating pricing strategies, refreshing product assortments and identifying opportunities to curtail costs.

Also, companies have been undertaking a more consumer-centric approach — emphasizing membership programs, store technology upgrades, shopping via mobile app and last-mile delivery solutions. Expedited delivery services like doorstep delivery, curbside pickup or buy online and pick up at store, as well as contactless payment solutions, cater to millenials, making shopping more convenient and efficient.

Per the latest Zacks Earnings Outlook, the sector is anticipated to have witnessed top-line growth of 5.9% year over year in the third quarter of 2023. This follows a 5% increase in the preceding season. Meanwhile, the bottom line is expected to have increased 24.9% this earnings season. The sector registered earnings growth of 21.4% in the previous reporting cycle.

Making the Perfect Choice

With the earnings season in full swing, it is worthwhile to invest in companies with earnings beat potential. A stock generally rallies on an earnings beat.

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 as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We have identified four stocks — American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) , Walmart Inc. (WMT Quick QuoteWMT - Free Report) , Costco Wholesale Corporation (COST Quick QuoteCOST - Free Report) and The TJX Companies, Inc. (TJX Quick QuoteTJX - Free Report) — that are poised to trump earnings estimates this season.

4 Prominent Picks

Investors can count on American Eagle Outfitters with a Zacks Rank #1 and an Earnings ESP of +5.50%. The Zacks Consensus Estimate for third-quarter fiscal 2023 earnings per share has risen by a penny to 47 cents in the past seven days. The consensus estimate suggests an increase of 11.9% from the year-ago period. AEO has a trailing four-quarter earnings surprise of 43.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle’s efforts to rationalize inventory and contain costs are paying off. The strong performance of key brands like American Eagle and Aerie, coupled with expansions into premium and activewear segments, indicates potential for growth. The introduction of store designs and online enhancements demonstrates a commitment to improving the customer experience. The company is scheduled to report financial numbers on Nov 21, before market open.

You may consider Walmart, which has a Zacks Rank #2 and an Earnings ESP of +0.63%. Over the past seven days, the Zacks Consensus Estimate for third-quarter fiscal 2024 earnings per share has risen by a penny to $1.51, calling for an increase of 0.7% from the year-ago quarter. The omnichannel retail giant has a trailing four-quarter earnings surprise of 11.6%, on average.

Walmart has been working diligently to further strengthen its already formidable presence in the market. The company has embarked on a series of strategic e-commerce initiatives, encompassing acquisitions, partnerships and significant improvements in its delivery and payment systems. Simultaneously, Walmart is committed to elevating its merchandise offerings, thus ensuring a diverse and appealing product assortment. The company is slated to report financial numbers on Nov 16 before market open.

Costco also deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +3.00%. The Zacks Consensus Estimate for first-quarter fiscal 2024 earnings per share has risen by a couple of cents to $3.43 in the past 30 days. The consensus estimate implies an increase of 10.7% from the year-ago period. Costco has a trailing four-quarter earnings surprise of 2.1%, on average.

The discount retailer’s growth strategies, better price management and decent membership trends have been contributing to its performance. Cumulatively, these factors have been aiding this Issaquah, WA-based company in registering decent sales numbers. The company's distinctive membership business model and pricing power set it apart from traditional players. We believe a favorable product mix, steady store traffic, pricing strength and strong liquidity should benefit Costco, which is scheduled to report financial numbers on Dec 14 after market close.

The TJX Companies, with a Zacks Rank #3 and an Earnings ESP of +2.60%, is worth betting on. Over the past 30 days, the Zacks Consensus Estimate for third-quarter fiscal 2024 earnings per share has been stable at 97 cents, suggesting an increase of 12.8% from the year-ago quarter. This leading off-price retailer of apparel and home fashions has a trailing four-quarter earnings surprise of 6.6%, on average.

This Framingham, MA-based company’s flexible off-price business model, store expansion strategies, strong vendor relationship and availability of branded merchandise provide tremendous opportunities to drive sales and traffic. TJX's expansion initiatives and focus on technological integration, including data analytics and e-commerce advancements, underscore its adaptability to evolving market trends. TJX is scheduled to report financial numbers on Nov 15, before market open.