4 Retail Stocks To Avoid Now Post Dismal Earnings

With the first-quarter earnings season now effectively behind us, the retail sector is the only one still hogging the limelight, as a few stocks are lined up to report their financials. The conclusion derived from recent reports of retailers is that this sector’s performance has been disappointing to an extent, with a variety of traditional brick-and-mortar operators reporting lower-than-expected results, in spite of already low estimates.

The initial assumptions that the improved household buying power, as a result of energy savings, would reflect in the retail sector’s results, failed to translate much into reality. This was due to the shift in spending trends to online shopping, along with the competitive retail environment. For more details on earnings of this sector and others, please read our ‘Earnings Trends’ report.

With respect to the retail stocks’ Q1 scorecard, we now have results from 94.6% of the sector’s total market capitalization in the S&P 500, wherein total earnings grew 2.4% from the year-ago period and revenues increased 5.4%. While 68.4% companies beat earnings estimates, 50% have surpassed revenue expectations.

Notably, a sizeable chunk of these companies delivered better-than-expected results, probably because estimates for this quarter were already reduced to easy-to-beat levels, owing to the global macroeconomic concerns. The decent-looking picture, however, is also a reflection of strong results at Amazon.com, Inc. (AMZN - Analyst Report) . Once we exclude Amazon from the retail sector results, the comparisons start looking unfavorable.

Thus, as we gear up to enter another earnings season, it is time again to reshuffle your portfolio, and get rid of stocks that may hurt your returns. Here we have highlighted four Retail-Wholesale stocks that posted a negative earnings surprise in the last concluded quarter. These stocks are also witnessing downward revisions in estimates and carry a Zacks Rank #5 (Strong Sell). Falling estimates clearly indicate that analysts remained skeptical about these stocks’ future performance.

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