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SOURCE Zacks Investment Research, Inc.
CHICAGO, May 7, 2014 /PRNewswire/ -- Zacks Equity Research highlights Lithia Motors, Inc. (NYSE:LAD-Free Report) as the Bull of the Day and Haverty Furniture Companies, Inc. (NYSE:HVT-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onFoot Locker Inc. (NYSE:FL-Free Report), Vitamin Shoppe Inc. (NYSE:VSI-Free Report) and Tim Hortons Inc. (NYSE:THI-Free Report).
Here is a synopsis of all five stocks:
It was another beat for Lithia Motors, Inc. (NYSE:LAD-Free Report) as both new and used car sales kept humming along despite the weather. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits both in 2014 and 2015.
Lithia is one of the largest automobile retailers in the United States with 100 stores in 12 states. It sells 28 brands of new and used cars as well as operates repair and maintenance.
It serves both urban and rural markets and is therefore a good barometer of the nationwide economy.
On Apr 24 Lithia reported first quarter results and beat the Zacks Consensus by $0.07. Earnings were $1.03 compared to the Consensus of $0.96.
It was the 17th consecutive earnings surprise. The company hasn't missed since 2010.
Havertys has seen it all. The company was founded in 1885 in Atlanta and used to make deliveries in horse and buggy. It now has showrooms in 16 Southern and Midwest states. Havertys went public in 1929 during dark economic times, but it has survived each of the big economic shocks.
The impact of the recent housing bust is obvious in Havertys multi-year earnings history. Earnings plunged 88.7% in 2007 to just 8 cents before the rest of the country went into recession and took Havertys even lower.
The company didn't make money in either 2008 or 2009. Even 2010 and 2011 were still a struggle. But in 2012, the turnaround in the housing market, and the consumer, began to take hold. Havertys made 67 cents that year and it has seen rising earnings ever since.
3 Retailers Poised for Earnings Beats
After a nerve wracking holiday season, retailers had a stormy start to the new-year with the chilly and windy weather in January and most of February freezing the profits for the majority of them. The weather turmoil at the beginning of the first quarter lowered the footfall at stores as consumers were unable to step out of their homes. Meanwhile, it hampered the day-to-day operations of stores as the severe winter weather caused several stores to remain closed either for partial or the full-day. As a result, most of the troubled retailers trimmed their forecasts for the first quarter by the end of February.
However, following the weather improvement through the second half of February and an extended winter (colder-than-usual) weather throughout March, the businesses of most retailers picked up. Increased promotions and demand for winter products helped clear the stocked up winter inventory in the second half of the first quarter. From the profitability perspective, the colder-than-usual weather in March facilitated the retailers to recover a portion of the loss suffered earlier in the quarter, closing the first quarter in line or above their revised forecasts. Apart from signaling a recovery, this has positioned retailers for the upcoming spring season, allowing them to stock up fresh inventory.
What's In-store for Retail on the Road Ahead?
The first quarter remained tricky in the hands of frigid weather not only for the retailers but for the economy as a whole. Looking at the bigger picture, the turbulent weather seemed to have brought the economic recovery in the U.S. to a standstill as it slowed business investment and discretionary consumer spending. This was reflected in the meager 0.1% increase in the average annual real gross domestic product (GDP) rate for the first quarter as against a 2.6% growth recorded in the final quarter of 2013.
However, most economists believe that this GDP data does not reflect the real state of the economy as a change in weather conditions had brought about a revival of business activities in March and a further boom in April as consumers started shelling out their money on purchases. As a result, consumer spending grew 0.9% in March, marking the highest growth in 4 ½ years.
A rebound of economic activity also mirrored in the recent data on employment, which indicates that U.S. employers have added a robust 288,000 jobs in April – the largest in two years. Unemployment rate fell 6.3% in April – the lowest level since Sep 2008 and down from 6.7% in March. Additionally, as the economy comes out of the winter freeze, the Federal Reserve recently lowered its asset buying to $45 billion under its Stimulus program, marking its fourth straight $10 billion cut.
All said, agreeing to a rebound in the economy most economists have forecasted a 3.5% annual GDP growth rate for the second quarter of 2014.
Gaining confidence from the positive news flows, we believe Retail stands a strong chance of delivering a robust performance throughout 2014. Therefore, we suggest increasing positions on the retail stocks that are poised to beat earnings estimates in their upcoming announcements. An earnings beat will reiterate investor confidence in these stocks, leading to rapid price appreciation.
How to Choose Right Stocks?
Picking the best stocks from the Retail/Wholesale space for one's portfolio is not a fairly simple task. However, an easy way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season:
Foot Locker Inc. (NYSE:FL-Free Report): This is a Zacks Rank #2 stock with an earnings ESP of +1.91%. The current Zacks Consensus Estimate for first-quarter fiscal 2014 is pegged at $1.05. This New York City-based retailer of apparel, footwear and accessories had registered positive earnings surprise over the trailing four quarters with an average beat of +2.52%, and has a long-term earnings expectation of 9.4%.
-- The company is expected to report results on May 23, 2014.
Vitamin Shoppe Inc. (NYSE:VSI-Free Report): This nutritional products retailer carries Zacks Rank #3 with an earnings ESP of +1.47%. The current Zacks Consensus Estimate for first-quarter fiscal 2014 is pegged at 68 cents. This North Bergen, NJ-based company has posted a positive earnings surprise of 3.16% over the trailing four quarters and has a long-term earnings expectation of 15.3%.
-- Vitamin Shoppe is slated to report results on May 7, 2014.
Tim Hortons Inc. (NYSE:THI-Free Report): This company sports a Zacks Rank #3 and an earnings ESP of +3.28%. The current Zacks Consensus Estimate for first-quarter 2014 is pegged at 61 cents. This Oakville, Canada based quick-service restaurant operator had recorded positive earnings surprise of +1.45% over the trailing four quarters and has a long-term earnings expectation of 10.2%.
-- The company is expected to report results on May 7, 2014.
We believe that the above-mentioned stocks, armed with strong fundamentals and growth prospects are good investment options at the moment. As the U.S. stocks are on the lookout for a survival strategy, a sneak peek into the retail space for some potential outperformers backed by a favorable Zacks Rank and a positive Zacks Earnings ESP could be handy for investors.
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