Though the earnings season has reached its pinnacle, the main chunk of releases from the Retail-Wholesale sector is yet to come. This reporting cycle, the sector is likely to have witnessed a modest acceleration in sales as soaring inflation has been pinching consumers’ pockets. Also, a lack of stimulus checks this year might have dented demand to an extent.

Higher gasoline and food prices have been forcing consumers to rein in spending on big-ticket items. The rising cost pressures amid logistics bottlenecks, the tight labor market and higher promotional activities are putting margins in the spotlight. However, retailers have been re-engaging with customers, reviewing pricing, refreshing assortments and mitigating costs wherever possible.

Despite prevailing headwinds, the retail industry is likely to have benefited from the declining unemployment and steady wage gains. Industry experts also pointed out that rising prices might have compelled customers to look for budget-friendly options. Hence, industry participants have been coming up with unique products and better deals.

Companies have been undertaking a more consumer-centric approach, emphasizing membership programs, upgrading store technology, shopping via mobile apps and last-mile delivery solutions. Expedited delivery services like doorstep delivery, curbside pickup or buy online and pickup at store, as well as contactless payment solutions, have been aiding in maximizing a share of customers’ wallet.

Per the latest Zacks Earnings Outlook, the sector is anticipated to have witnessed top-line growth of 7.2% year over year in the second quarter of 2022. This follows a 6.6% increase in the preceding season and a 13.8% jump in the year-ago period. Meanwhile, the bottom line is expected to have declined 22.1% this earnings season. The sector registered an earnings decline of 17.5% in the last reporting cycle and an increase of 46% in the prior-year quarter.

Making the Perfect Choice

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.

4 Prominent Picks

Dollar General Corporation (DG Quick QuoteDG - Free Report) deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +0.99%. The Zacks Consensus Estimate for its second-quarter fiscal 2022 earnings is pegged at $2.92 per share. The consensus mark for earnings has increased by a couple of cents in the past 30 days. DG has a trailing four-quarter earnings surprise of 2.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Better pricing, private label offerings, effective inventory management and merchandise initiatives have been aiding this Goodlettsville, TN-based company’s performance. These, along with a focus on consumable and non-consumable categories, are noteworthy. Dollar General has been offering “better-for-you” products at affordable prices. Additionally, it has been expanding cooler facilities to drive the sale of perishable items. The company’s initiatives, such as DG Fresh, Fast Track and digitization, are likely to have driven same-store sales. Dollar General is scheduled to report results on Aug 25 before market open.

Ulta Beauty, Inc. (ULTA Quick QuoteULTA - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +3.27%, is worth betting on. The Zacks Consensus Estimate for its second-quarter fiscal 2022 earnings per share is pegged at $4.84. The consensus estimate for earnings has risen 1.3% over the past 30 days. This beauty retailer and premier beauty destination for cosmetics, fragrance, skincare products, hair care products and salon services has a trailing four-quarter earnings surprise of 49.8%, on average.

Ulta Beauty has been strengthening its omnichannel business and exploring the potential of both physical and digital facets. It has been implementing various tools to enhance guests' experiences like offering a virtual try-on tool and in-store education and reimagining fixtures, among others. Ulta Beauty focuses on offering customers a curated and exclusive range of beauty products through innovation. The company is slated to report financial numbers on Aug 25 after market close.

You may consider Abercrombie & Fitch Co. (ANF Quick QuoteANF - Free Report) , which has a Zacks Rank #3 and an Earnings ESP of +15.39%. The Zacks Consensus Estimate for its second-quarter fiscal 2022 earnings per share is pegged at 26 cents. The consensus mark has been stable over the past 30 days. ANF has a trailing four-quarter negative earnings surprise of 73.8%, on average.

Abercrombie & Fitch’s focus on brand growth, leveraging omnichannel capabilities and increasing digital penetration have been the key drivers. The company has been gaining from continued strength in the Abercrombie & Fitch brand. It also remains on track with rationalizing the store base by reducing dependence on underperforming tourist-driven locations. Abercrombie & Fitch is slated to report results on Aug 25 before market open.

Investors can count on The Children's Place, Inc. (PLCE Quick QuotePLCE - Free Report) , the children's specialty apparel retailer, with a Zacks Rank #3 and an Earnings ESP of +1.03%. The Zacks Consensus Estimate for second-quarter fiscal 2022 earnings per share has been stable at 97 cents in the past 30 days. PLCE has a trailing four-quarter earnings surprise of 58%, on average.

The Children’s Place has been accelerating the fleet optimization initiative, directing resources toward digital platforms to better engage with customers, augmenting the supply chain and taking pricing actions. It has been focusing on the “Superior Product” strategy to resonate well with millennial customers and advance omnichannel capabilities. The Children’s Place is scheduled to report financial numbers on Aug 17 before market open.

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