5 Retail Stocks Set To Pull Off A Beat This Earnings Season

This earnings season has been largely shadowed by the coronavirus pandemic that brought economic activities to a standstill — leading to job losses and pay cuts. This in turn largely affected consumer confidence and household income, dealing a mighty blow to retailers.

Nonetheless, measures undertaken to support households such as stimulus checks and enhanced unemployment benefits coupled with the resumption of business activities post the coronavirus lockdown ushered in some good news for retailers. But consumers still preferred purchasing essentials before splurging on fashion and leisure items. No wonder, players like Target (TGT - Free Report) and Walmart (WMT - Free Report) dealing in food and other household products are likely to have benefited from consumers’ shift in buying behavior and spending pattern due to the pandemic.

Meanwhile, given the aggravating COVID-19 scenario, people have been steering clear of malls, physical stores or other public places, and are instead preferring online shopping. As work from home and dine at home have become the new normal, companies have been directing resources toward advancing omni-channel capabilities and ramping up delivery services or curbside pickup in order to better engage with customers.

Well these may sound soothing but might not be enough to alleviate the pressure on margins. Industry experts pointed that investments in pay and benefits for frontline team members, shift in channel mix toward digital fulfillment, transition toward lower-margin categories, and decline in higher-margin discretionary items’ sales are expected to have hurt margins.

Undeniably, opportunities created and challenges posed by the pandemic will be the highlight of the quarter. Per the latest Earnings Preview, the bottom line is expected to plunge 18.6% this earnings season, following a decline of 20.2% in the last reporting cycle. Meanwhile, the sector is anticipated to witness top-line growth of 4.9%, suggesting a decline from 8.6% increase registered in the preceding season.

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