It’s almost that time of the year again: The couple weeks where retailers arrive in droves to report their numbers for the most recent quarter.
However, a good chunk of the sector has seen analyst expectations pared back over the last three weeks — and by much more than the handful of names whose projections have slightly improved. Companies from all across the shopping spectrum — including Walmart (WMT), Tiffany & Co. (TIF) and American Eagle Outfitters (AEO) — are all facing lowered bars.
Still, not all stocks in the sector are struggling. In fact, a few retail stocks boast not only steady or improved analyst profit estimates, but also have big gains already in the books leading up to their earnings reports — even in the face of recent weakness.
Let’s take a look at three of them, and see what it could mean for each stock:
Click to Enlarge Earnings Date: Aug. 19
YTD Return: 32%
Guess (GES) is expected to post earnings of 36 cents per share for the most recent quarter — a number that has held steady for the past 90 days. Investors also think highly of GES, driving shares up more than double the S&P 500’s return for the month before Tuesday’s slip, and up 36% for the year-to-date.
The company has beat estimates in the last two quarters, too, posting an especially noticeable blowout in the most recent period. While analysts were hoping for earnings of 8 cents per share, Guess nearly doubled that with a 14-cent profit.
Of course, that could come back to bite Guess if investors hike their expectations for something more spectacular than an earnings match, especially given GES’ froth. How much froth? Well, Standpoint Research downgraded the stock from “buy” to “hold” back in May, saying Guess was fairly valued.
Investors kept buying, though, and now GES trades at 16 times next year’s earnings, vs. unimpressive five-year annual growth expectations of less than 7%. Plus, its $33 pricetag already dwarfs the median analyst price target.
With that in mind, I’m a bit wary of the coming earnings report, especially considering many think the market as a whole is set to take a breather. The slightest slip could spark a selloff.
Click to EnlargeEarnings Date: Aug. 22
YTD Return: 44%
A similar tale can be told for another strong retail brand. Gap (GPS) has been booming so far this year — so much so that it made our list of the “5 Hottest Retail Stocks So Far in 2013″ back in mid-July. Even then, though, there were concerns that any soon-to-be-reported earnings growth was already baked in.
Last quarter, Gap — the company behind its namesake Gap, plus Old Navy and Banana Republic — posted a 43% year-over-year improvement in profits, which was good for a 2-cent EPS beat and a solid stock boost. For the next quarter, analysts are expecting EPS of 59 cents — a penny more than they estimated 90 days ago, and representing 20% growth.
The stock’s impressive year-to-date climb, though, caused Piper Jaffray to downgrade the stock to “neutral” from “overweight” in mid-July on grounds that earnings increases were already considered in Gap’s price. And Gap’s price today remains around the same as it was when the analyst made its call — and only because of recent red tape.
Still, Gap is nowhere near as frothy as our first stock, Guess. If the stock’s relative softness continues up until earnings, GPS could be a prime buying opportunity in anticipation of a post-report boost.
Click to EnlargeEarnings Date: Aug. 21
YTD Return: 20%
Earlier this week, I noted that L Brands (LTD) is one of a handful of names in the retail sector that doesn’t get its second-largest chunk of sales from the current third quarter. Instead, the second quarter, which L Brands will report in two weeks, tends to be the next-best thing — in terms of both sales and unadjusted earnings — after the holiday season.
That’s good news considering analysts are now expecting a penny more than they were a few months back: a solid 54 cents, which also is toward the upper end of the range L Brands gave during its first-quarter call. Still, that only makes for 8% earnings growth — hardly head-turning.
LTD middled a bit after its most recent report, which boasted 14% earnings growth on strong revenue, before jumping around 19% in the past month of trading to set new all-time highs.
On the one hand, that kind of momentum could easily carry into the next earnings report, especially considering the company has beat earnings estimates the past four quarters, is expanding its PINK brand rapidly and is working to consolidate stores and improve productivity.
But considering L Brands is expected to grow earnings by about 10% annually over the next half-decade — and considering LTD is a little pricey at 16 times 2014 earnings — the company might have to show more than single-digit growth this quarter to keep investors excited.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.