Earnings Preview: Four Retail Stocks That Could Surprise

The Fed will publish its economic forecast on Tuesday, initiating a plan to provide more transparency. On a quarterly basis, the Fed will now publish three-year economic projections, an explanation of the rationale behind the forecast and a sense of the level of agreement (or disagreement) among policy makers about the outlook.

This is a laudable step forward, but good intentions can have unintended consequences. Specifically, it is completely unknown how much volatility these quarterly forecasts will add not only to the bond markets, but also the stock markets, the currency markets and the commodity markets. Given Thanksgiving and the fact that Fed Governor Randall Krozner bluntly stated his opposition to a rate cut at the upcoming December meeting, the reaction on Tuesday may not be typical of what will occur when the next forecast is published in January.

Along with the quarterly forecast, the minutes from the October Federal Open Market Committee will be released on Tuesday. Both the minutes and the quarterly forecast should be accessible on the Federal Reserve's web site.

Staying on the economic front, the November National Association of Homebuilder's housing index will be published on Monday. October housing starts data will be published on Tuesday. Wednesday will bring November consumer confidence numbers from both the Conference Board and the University of Michigan. Weekly initial jobless claims will be released a day early because of the holiday.

All of the week's 76 earnings reports will be released on Monday, Tuesday or Wednesday. Retailers comprise almost half of this group, including S&P 500 members Lowes (LOW) and Target (TGT). Several technology companies will also report, including Dow component Hewlett-Packard (HPQ).

The U.S. financial markets will be closed on Thursday in observance of Thanksgiving. The U.S. equity markets will close early on Friday, at 1 p.m. ET.

On behalf of everybody at Zacks, I would like to wish all of you a happy Thanksgiving.

Third-Quarter Earnings Performance

More than 90% of the S&P 500 have reported as of Thursday evening (Nov 14). Given this large proportion, it is unlikely that we will see a material change in aggregate third-quarter numbers from this point forward.

Median per share earnings growth for the third quarter is 11.3%, a slight decrease from a week ago, but still better than what we were expecting in September. Positive surprises have outnumbered negative surprises by a margin of 2.6:1.

For the S&P 1500 Composite (S&P 500, S&P MidCap 400 and S&P SmallCap 600), median per share earnings growth is running at 10.3%. Positive surprises are outnumbering negative surprises by a margin of 2.1:1.

Companies That Could Issue Positive Earnings Surprises during the Week of Nov 19 - Nov 23

Judging from the trend in estimate revisions, several brokerage analysts think it might be time to fall into the Gap. October same-store sales for the Gap Inc. (GPS) fell 8%, but better inventory management improved margins and has the company predicting third-quarter profits of 28 to 30 cents. The bullish profit guidance caused the majority of the covering brokerage analysts to raise their forecasts, thus pushing the consensus estimate seven cents higher to 29 cents per share. GPS has topped expectations for seven consecutive quarters. Gap is scheduled to report on Wednesday, Nov 21, before the start of trading.

Bullish earnings reports from two video game makers (Activision (ATVI) and Electronic Arts (ERTS)) and the successful launch of Halo has brokerage analysts optimistic about GameStop's (GME) prospects. One-third of the covering analysts have raised their third-quarter forecasts during the past 30 days, pushing the consensus estimate one-cent higher to 23 cents per share. The most accurate estimate is more bullish at 24 cents per share. GME has surpassed expectations during each of the three previous quarters. GameStop is scheduled to report on Tuesday, Nov 20, before the start of trading.

Gymboree (GYMB) said earlier this month that October same-store sales jumped 8% last month. The company also upped its third-quarter profit guidance to between 88 and 90 cents per share, from 84 to 87 cents per share. Nearly all of the covering brokerage analysts revised their forecasts following the announcement. The third-quarter consensus earnings estimate now stands at 90 cents per share, three cents higher than the average forecast of a month ago. GYMB has topped expectations for four consecutive quarters.

Companies That Could Issue Negative Earnings Surprises during the Week of Nov 19 - Nov 23

Last month, Charming Shoppes (CHRS) cut its revenue and profit guidance. The company said fall fashion styles, unseasonably warm weather and the slowing economy all had an adverse effect. The revised forecast calls for breakeven results instead of the previously projected profit of between 11 and 13 cents per share. Brokerage analysts currently anticipate the plus size retailer to report a loss of one cent per share. The most accurate estimate is more bearish and calls for a loss of three cents per share. Charming Shoppes is scheduled to report on Wednesday, Nov 21, before the start of trading.

Written by Charles Rotblut.