The earnings season, which is nearing its end, has been quite impressive this time around. However, the show is not over yet. With several retail behemoths including walmart, Macy's and Target, queued up to report their quarterly numbers, investors are likely to keep their eyes on the Retail-Wholesale sector's progress card.
We note that the sector has gained 4.7% in a month, outdoing the S&P 500's 2.1% growth. This can be attributable to a number of micro and macro factors, which have been viewed as positive signals for retailers' upcoming results.
Retail on Growth Trajectory: Here's Why
The recent uptick in consumer spending, which accounts for more than two-thirds of economic activity, bodes well. Incidentally, consumer spending inched up 0.4% in March, following 0.2% growth in January while remaining flat in February. This renewed momentum in March emerged from continued rise in income, indicating that consumers may drive economic growth in 2018. In fact, March retail sales advanced 0.6%, bearing testimony to this.
Apart from this, the sector is poised to gain from massive tax cuts and a robust labor market. Notably, the unemployment level that remained stable at 4.1% for six months till March, declined even further to 3.9% in April.
Turning to micro factors, companies in this space are also expected to gain from aggressive omni-channel efforts to keep pace with the changing consumer shopping patterns. To this end, retail players' solid e-commerce endeavors, compelling pricing strategy, promotional activities, and efforts to strengthen portfolio and enhancing stores experience remain major drivers.
Surely, these strategic investments are eating a portion of margins but retailers are playing smart by undertaking stringent cost-cutting and restructuring activities.
Notably, total earnings of the S&P 500 retailers that have already reported results increased 26.1%, on the back of 14.9% jump in revenues, per the latest Earnings Preview. Well, about half of the retailers in the S&P 500 index released their quarterly outcomes, with 68.4% topping bottom-line estimates and 63.2% delivering positive revenue surprise.
